SACRAMENTO — Gov. Arnold Schwarzenegger wants to raise the state sales tax by 1 percentage point for several years as part of a plan to close the state's gaping budget deficit, sources familiar with negotiations said Monday.
The proposal marks a sharp deviation from the Republican governor's long-standing opposition to higher taxes.
Schwarzenegger, sources said, suggested boosting the sales tax — which currently ranges from 7.25 percent to 8.75 percent in California, depending on the jurisdiction — for a period of three years and to use the proceeds to help create a larger rainy day reserve. He also wants to impose stricter spending limits on the Legislature.
After three years, the sales tax would drop by a quarter percentage point from its current level — an idea designed to make the plan more palatable to Republicans. A 1-cent sales tax increase would generate about $5 billion annually, about one-third the size of the state's shortfall.
The governor's office declined to comment on the proposal, which Schwarzenegger first pitched to legislative leaders during a private meeting Sunday. But when given the opportunity to deny it, the governor's spokesman, Aaron McLear, did not do so, instead reiterating Schwarzenegger's interest in breaking the budget deadlock and overhauling the budget to avoid similar crises in the future.
"The governor has been pushing Republicans and Democrats to come to a compromise,"
Schwarzenegger has long prided himself as a fiscal conservative, even mocking Democratic opponents for what he called their addiction to taxes. But with California confronting an estimated $15.2 billion deficit and still without a budget five weeks after the start of its fiscal year, Schwarzenegger has been forced to reconsider his no-new-tax philosophy.
Still, an increase in the sales tax may face an uphill fight in the Legislature. Republicans consistently have opposed higher taxes, though they have shown some openness recently to closing tax loopholes as part of a budget deal. Because budgets require a two-thirds majority in both houses of the Legislature, any tax increase would have to attract at least some GOP support.
"We're opposed to that," said Assemblyman Roger Niello, R-Sacramento, vice chairman of the Assembly budget committee. "It is very difficult for the economy to recover with the heavy hand of the government treasury in its pocket."
Democrats have been open about their desire for higher taxes to help solve the deficit, though the sales tax is by no means their first choice. The Democratic budget proposal includes $9 billion in new taxes, but they are aimed mostly at corporations and the wealthy. Sales tax increases, by contrast, tend to hit lower- and middle-class residents harder because they spend a bigger share of their income on taxable sales.
One political analyst said that the governor should explain his tax plan to the public, rather than having it leak to the media and remain mum about it.
"This is Mr. Salesman, the guy who could sell anything," said Tony Quinn, co-editor of the California Target Book, which analyzes legislative races. "If he's going to sell his party on a sales tax, and the Democrats who view it as regressive, he ought to lay it out before the people and say this is the way we're going to get out of this problem."
News of the tax increase pitch came amid growing controversy over the governor's order to cut the pay of up to 200,000 state workers to the federal minimum wage. State Controller John Chiang, who is responsible for issuing paychecks to state employees, vowed again at a Senate committee hearing to ignore the governor's directive.
Schwarzenegger thinks that state law and a 2003 state Supreme Court decision bars the controller from making those payments. That could trigger a legal showdown. There were growing signs Monday that Schwarzenegger would file a lawsuit against Chiang as early as this week.
Speaking before the Senate Governmental Organization Committee, Chiang said that because of his office's antiquated computer payroll system, it would take six to 10 months to comply with the governor's executive order. He said a lawsuit by Schwarzenegger would be "tragic and unfortunate."
But Fred Klass, chief operating officer for Schwarzenegger's finance department, doubted that complying with the pay cut order would take that long. He also questioned why the controller's computer system still is not equipped to change the pay rate of state employees — five years after a court decree saying that California is not authorized to pay most workers more than the minimum wage if a budget has not been enacted.
"It's not at all clear why the system hasn't been changed," Klass said. "The governor is saying, "We need to follow the law.'"