Facing the worst fiscal crisis of his political career, the Republican governor in recent months has signaled in increasingly frank language that he would consider new taxes as part of a compromise to close an $8 billion deficit.
To be sure, he's never declared: "Let's raise taxes." But more and more, he's saying he is at least open to discussing it.
"I made it very clear my proposal" does not call for raising taxes, Schwarzenegger said at one of several appearances around the state last month addressing the budget. "But I'm not the only one that runs the state Capitol and that runs the state."
Legislators, he added, are also involved in budgeting. And in the process of finding a compromise with the governor, higher taxes might enter the picture.
"I said and I made it very clear that everything is on the table," Schwarzenegger said.
The governor in January unveiled a budget that called for 10 percent, across-the-board spending cuts and would reduce money for schools by billions of dollars, close dozens of state parks and slash payments for health care for the poor. But Democrats declared the plan dead on arrival in the Legislature and said that the size of the budget shortfall demands some boost in revenues, either raising taxes or closing tax loopholes.
Complicating matters is a requirement in California that tax measures get a two-thirds vote of the Legislature, which gives Republicans virtual veto power over increases.
A review of the governor's public remarks on the budget since January point to a politician deeply conflicted over taxes. As recently as February, he took a hard line on the issue: "I can tell you this right now: There will be no raising taxes because we don't have a revenue problem, we have a spending problem."
Since then, the governor has struck a more compromising tone, suggesting that ideas such as closing tax loopholes, or applying the sales tax to services currently not subjected to it -- such as, say, haircuts and legal advice -- should be on the table.
The governor's recent rhetoric is a stark departure from his more absolutist stance on taxes -- an issue that has defined him politically possibly more than any other -- during both of his campaigns.
Some experts say it reflects a battle between two identities -- one, the anti-tax conservative and self-proclaimed disciple of free-market economist Milton Friedman; the other the political realist trying to fix the state's daunting fiscal problem and dealing with a Democrat-controlled Legislature that resists his vision.
Call it a collision of idealism and pragmatism.
"It's a very specific example of how the governorship has thrust reality into his face," said John Pitney, a politics professor at Claremont McKenna College. "He is now faced with a choice between two very painful alternatives, and he may reckon that agreeing to a tax increase may be the less painful of the two."
Members of his own party have noticed the change, too.
"I don't think he's lost his way, but I think his way has become a lot more complicated than he thought," said Sen. George Runner, R-Lancaster. "Ultimately our message will be, 'You're not going to get tax increases from this Legislature.'"
Matt David, a spokesman for the governor, said Schwarzenegger is trying to prod legislative leaders to start negotiating.
"He understands," David said, "that when you're trying to bring people to the table, you can't set conditions on what they can bring."
Even before the current budget crunch, Schwarzenegger's history on taxes followed a tortured path. He mercilessly pummeled former Gov. Gray Davis for raising the so-called car tax during the state's most recent fiscal crisis; in his first act as governor, Schwarzenegger slashed the fee.
"The people of California have been punished enough," Schwarzenegger said during the recall. "From the time they get up in the morning and flush the toilet, they are taxed."
Schwarzenegger, who is termed out in 2011 and isn't expected to run for political office again, still often speaks the language of a low-tax conservative. But there has been a noticeable softening since his 2006 re-election.
His plan for universal health care last year included a fee -- which legislative lawyers labeled a tax -- on most businesses that don't offer insurance to workers. A year earlier, after Phil Angelides, his Democratic opponent in the 2006 governor's race, embraced essentially the same idea, Schwarzenegger accused him of favoring a giant tax increase.
The governor's health plan also included a tax on hospital revenues. He excused himself for the fees or taxes, saying they were part of his plan for "shared responsibility" to fix the health care system.
The tax issue, some say, illustrates Schwarzenegger's transition from bomb-throwing outsider to deal-making creature of the Capitol.
"He's not the 'blow-up-the-boxes' reformer that we saw in 2003," said Pitney, referring to Schwarzenegger's famous recall election pledge to streamline government bureaucracy. "Turns out those boxes were pretty darn sturdy."
Reach Mike Zapler at email@example.com or 916- 441-4603.
What the governor said
Jan 6, 2004, first State of the State address: "The fact of the matter is that we do not have a tax crisis; we do not have a budget crisis; we have a spending crisis. We cannot tax our way out of this problem."
June 13, 2005. "Some politicians say the answer is to raise taxes. They say, 'Bring back the car tax, Arnold. Raise the income tax. Get rid of Prop 13.' But I say no. I did not come to Sacramento and you did not send me here to repeat the mistakes of the past."
Oct. 7, 2006, addressing his opponent for re-election, Democrat Phil Angelides, during a debate: "I think that it is very clear, I can tell from the joy that you see in the eyes when you talk about taxes. You just love to increase taxes. Look out there right now and say, 'I love increasing taxes.'"
March 19, 2008: "We also have to look at ... the way we are taxing. I mean, there are whole new economies that are developing, service oriented economies. ... And I think that California, or any state, or any city, should always re-evaluate. What do we have here? Are we really up to date? And re-evaluate the whole thing, and make the changes, and be courageous to make the changes."
March 20, 2008: "They know where I come from, that I'm against raising taxes. They know where I'm coming from, that we have to go and reform the budget and all this. But I'm not the only one that is running the Capitol. I'm not the only one that is running the state of California."