Schwarzenegger Defends Tax Hikes, Applauds Stimulus

From The Los Angeles Times:

Gov. Arnold Schwarzenegger on Sunday defended his decision to raise taxes as a necessary step to stem California's staggering economic crisis.

During appearances on morning news shows in Washington, D.C., Schwarzenegger said he would gladly accept money from the federal stimulus package approved by Congress last week even though some fellow Republican governors had balked at the program. And he predicted that although California's economy would begin rebounding next year, it would take "years from now to get back to where we were."

"I don't think that we have turned a corner yet," Schwarzenegger said on CNN's "State of the Union With John King."

The $130-billion state budget signed Friday by Schwarzenegger has earned the second-term governor jeers from state Republicans, some of whom argued for more spending cuts over tax hikes, which include across-the-board sales- and income-tax increases for the first time in 17 years. Schwarzenegger said that he drastically slashed spending in the new budget and that elected officials who disagree with his approach are "not in touch" with the public.

"It's very simple. Listen to the people," Schwarzenegger said on ABC's "This Week With George Stephanopoulos."

The governor called the federal stimulus plan a "terrific package" and said Republican leaders throughout the nation needed to shelve party ideologies in the face of the ongoing economic crisis. He cited, for example, South Carolina Gov. Mark Sanford, who has said he may refuse federal stimulus money for his state.

GOP Leader Ousted Over Tax Hikes; Still No State Budget Deal

From The Mercury News:

The Senate Republican leader who agreed to a budget deal with billions of dollars in tax increases was ousted by his GOP colleagues in a late-night coup early this morning, injecting another dose of uncertainty into the high-stakes battle over the state budget.

Around midnight, the Senate Republican caucus voted to boot Dave Cogdill of Fresno, one of the so-called "Big 5" leaders who reached a pact last week to close the state's staggering $40 billion deficit with a mix of steep tax hikes, spending cuts and borrowing.

Cogdill, who was chosen to lead the caucus last year in large part because of his conservative anti-tax credentials, angered his GOP colleagues last week when he brought them a budget package that included $14.3 billion in tax increases. The measure remains a single Republican vote in the Senate shy of approval.

"It's a shame it ended this way," the usually straight-faced Cogdill said with a hint of emotion after learning the news. "But we did what we thought was right. I love this state." Voted in as the new Republican leader was Dennis Hollingsworth, R-Murietta, who wasted no time emphasizing his opposition to higher taxes while criticizing the budget deal.

What effect Cogdill's ouster will have on the search for the final budget vote wasn't immediately clear. But it did not go unnoticed that the two Republicans targeted as the most likely possibilities for casting the decisive vote in favor of the deal — Abel Maldonado of San Luis Obispo and Dave Cox of Fair Oaks — opposed Cogdill's removal.

Arnold Schwarzenegger Wanting to Tax Golf, Auto Repairs

Reports have come in that California Governor Arnold Schwarzenegger would like to tax some additional services in the State of California to create revenue. A snippet of an Associated Press article discussing the issue can be found below, but you can find the full text here.

Golf course owners and some of their customers are teed off at Gov. Arnold Schwarzenegger. So are veterinarians, auto mechanics and amusement park operators.

Their anger is directed at the Republican governor's proposal to extend the state sales tax to cover more services, an idea that has surfaced in other states as they race to plug crippling budget deficits. The Center on Budget and Policy Priorities, a research clearinghouse, predicts such deficits nationwide could reach $350 billion by 2011.

In California, Schwarzenegger wants to help close a nearly $42 billion budget deficit by taxing rounds of golf, auto repairs, veterinary care, amusement park and sporting event admissions and appliance and furniture repairs.

Democratic Gov. David Paterson in New York has proposed levies on MP3 downloads, taxi rides, movies, concerts, sporting events, and personal services such as haircuts, manicures and massages.

Schwarzenegger's fellow Republican in Utah, Gov. Jon Huntsman, has shelved a proposal to tax attorney and accounting services but promises to bring it back next year.

California May Delay State Refunds for 30 Days

From the Sacramento Union:

California’s controller said Friday he will be forced to impose a 30-day delay on tax refunds and some other payments starting Feb. 1 if lawmakers fail to agree on a plan to erase a nearly $42 billion budget deficit.

Controller John Chiang, who acts as the state’s accountant, said he will have no choice but to delay $3.7 billion in payments next month because the state is running out of cash.

Doing so, he said, would buy the state a few more weeks before its accounts run dry. The state is on the brink of issuing IOUs as it faces a $41.6 billion shortfall over the next year-and-a-half.

“Let me make this perfectly clear: This is a painful decision,” Chiang said during a news conference in Sacramento. “It is an action that is critically necessary. The fallout from issuing IOUs, or for the state going into default, are significant and long-lasting and something to be avoided at nearly all costs.”

A severe drop in revenue from sales, property and capital gains taxes has left the state’s main bank account depleted. The state has not had a positive cash balance since July 12, 2007, Chiang said.

The state had been relying on borrowing from special funds and Wall Street investors, but those options are no longer available. Democratic and Republican legislators and GOP Gov. Arnold Schwarzenegger have been at odds for months over to fix the budget gap.

Chiang said his office must continue $6.6 billion in education and debt payments next month but will defer money for tax refunds, student aid, social services and mental health programs.

CA may Issue IOUs for Tax Refunds

From ABCNews.com:

With the state budget crisis ongoing, the state's Controller says California may be forced to send out IOUs instead of refunds.

Hoping to get her state income tax refund as soon as possible, Akisha Marshall is getting a jump-start on her filing.

ABC7 asked her, "How much do you depend on your refund?"

"A lot. It's just like a job check," she said laughingly.

Last year 2.7 million people got their state refund in February totaling $2 billion. But, this single mom and other Californians may have to wait for their refund this year.

It is Day 61 of the state's budget stalemate and the state will run out of cash next month. It is at the point where the Controller will have to issue IOUs to pay the bills, including state tax refunds.

"An IOU is a registered warrant issued on behalf of the state's treasury that lets the individual receiving the IOU know that they will receive their funds at a later date," explained Jacob Roper with the State Controller's Office.

When asked, "How much later?" Roper replied, "We don't know."

State lawmakers just came back from a long holiday break to continue budget negotiations. Republicans still do not want to raise taxes and Democrats do not want deeper cuts to social programs.

CA Court Rejects Lawsuit Against Tax Increases

There has been a lot of talk about the California budget here in my hometown of Sacramento. Recently, a State Legislator went a roundabout way of increasing the state’s revenue without needing a super majority vote to pass a tax increase. Almost immediately, anti-tax groups here in California filed motions with the Supreme Court. However, according to the Associated Press, the appeals court has rejected the motion:

A California appeals court has tossed out a lawsuit filed by anti-tax groups that sought to block a package of tax increases passed by Democrats in the state Legislature.

Citing separation of powers, the court ruled Wednesday it could not intervene because Gov. Arnold Schwarzenegger had not signed it into law.

Schwarzenegger eventually vetoed the $18 billion proposal to help close California's $42 billion budget deficit.

The lawsuit was filed by the Howard Jarvis Taxpayers Association, with support from most Republican state lawmakers.

They argued that the Democratic majority acted illegally when it passed the tax increases because it did so with a simple majority vote. The state Constitution requires a two-thirds majority for tax increases.

More California Budget Problems

Just weeks after the California legislature passed a budget for this year, Governor Arnold Schwarzenegger is calling out for tax increases, and drastic spending cuts, to help keep the state out of bankruptcy.

According to the San Francisco Business Times, “California Gov. Arnold Schwarzenegger proposed $4.7 billion in new taxes -- including a three-year increase in the state sales tax -- and $4.5 billion in new cuts Thursday to prevent a cash crisis brought on by a projected $11.2 billion hole in the current state budget.

Proposed new taxes include an immediate, three-year increase in the sales tax by 1.5 cents on the dollar; broadening sales and use taxes to items such as car repair, golf and veterinary services; a tax on oil extraction in the state; and an increase in alcohol taxes. The temporary increase would push the state portion of the sales tax to 8.75 percent, before any local sales taxes were considered.”

However, his plans are drawing a lot of criticism, with many claiming that a sales tax increase is not the best option. According to Mercury News, the Governor has plenty of better options to increase revenue.

“Eliminating tax credits for families with children, taxing attorneys' fees and raising business property taxes—these are some of the options Gov. Arnold Schwarzenegger could have proposed before settling on a 1.5 percent temporary sales tax increase.

None are easy choices in a struggling economy.

In laying out a proposal to increase sales tax for three years, the governor stressed an urgent need to raise revenue to maintain police protection and uphold California's education system.

‘We feel very comfortable that this is the best tax to use,’ the governor said Thursday while revealing a $11.2 billion hole in this year's budget. ‘This is the best way to go and we have to not delay it. I think now is the time for action.’

Economists recognize that the best form of taxation is the broadest one at the lowest rate. But California's budget fluctuates because it depends on a narrow segment of high-income earners whose fortunes ride with the stock market. About 50 percent of the state's personal income tax revenue comes from the top one percent of wage earners.

To complicate matters, the state's manufacturing-based sales tax has been shrinking proportionately because it hasn't been modified in decades to reflect service sector growth.

And a higher sales tax at a time when overall consumption is down may not do much to grow revenues.”