Budget Woes May Lead to Higher Taxes

August 22, 2008 12:36:31 AM PDT
The state budget stalemate has many people worried about an increase to the state's sales tax. Raising it is something the governor now supports, but republicans say it will never happen.

Governor Schwarzenegger's proposal to temporarily raise the sales tax by one-percent is worrying struggling Californians.

If adopted, it would hit a typical family of four another $500 a year.

At WalMart, where dollars can go a little farther, budget-conscious shoppers say they can't afford it.

"Wow, that is high, especially with gas prices; they're so high already. And they're going to raise up the tax prices? No!" said penny pincher Angie Lee.

Critics call the sales tax hike regressive. It hurts low wage families the hardest because a larger percentage of their income will go towards paying sales taxes.

Last year, those who made $18,000 or less spent almost 8.5 percent of their earnings on sales tax. While the wealthy, making more than $430,000 a year, forked over less than one-percent.

Anti-tax groups say this could send the poor over the edge.

"It's like throwing a drowning person a cinder block, instead of a life preserver," said Jon Coupal from the Howard Jarvis Taxpayers Association.

The Governor considered targeting just the rich and taxing their income even more, but income tax fluctuates too much, and opted for the sales tax instead.

"It's not a question of rich versus poor. It's a question of what, in the short term, is a more stable source of revenue to help get us through to better times," said H.D. Palmer from the California Department of Finance.

While Democrats have been pushing for tax hikes to help get California out of its $15 billion dollar hole, the Chairwoman of the Revenue and Taxation Committee says this tax proposal puts her party in a bind.

"A sales tax or any kind of tax increase is going to hurt people in the pocketbook. On the other hand if we don't do something to increase taxes, we're going to have to cut programs that hurt those very same people hardest," said State Senator Jenny Oropeza (D) Long Beach.

Under the Governor's proposal, after three years, the sales tax would actually be cut below what it is today, sort of a tax rebate. In that case, low-wage families would actually benefit the most. But no one's betting the temporary tax is actually temporary.


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