2008 November 06 Thursday
Schwarzenegger Proposes Higher California Sales Tax

California already features high tax rates along with a large welfare state and a lower class expanding as a result of immigration. The economic downturn has made California's continual fiscal crisis even worse to the point that Governor Schwarznegger has proposed a sales tax increase that will, combined with local sales taxes, put the sales tax over 10% in some areas.

A temporary 1.5 percent sales tax increase proposed Thursday by Gov. Arnold Schwarzenegger to deal with the state's worsening fiscal crisis comes just two days after Marin voters approved a quarter-cent sales tax increase for passenger rail service.

In San Rafael, it would push the sales tax to 10 percent.

First they take money out of your paycheck. Then they take more money when you go to spend what they let you keep. I thought Europe exists so that people who want to pay high sales taxes have a place to go do that. Do we really need California to serve that purpose for masochists too?

The California budget deficit has soared again as the financial crisis cut tax revenues.

Schwarzenegger, who proposed the tax hike along with another $4.5 billion in spending cuts during a news briefing, said he has little choice: Just six weeks after signing an overdue state budget intended to close a $15.2 billion deficit, the state faces an $11.2 billion deficit.

The shortfall was only $3 billion less than a month ago. California has a 7.7% unemployment rate with only 3 other states worse.

The budget gap has grown from $3 billion the state estimated when it sold $5 billion of short-term notes Oct. 16. That deficit figure was based on tax revenue projections through September and didn't anticipate projected shortfalls in October.

If you are a Californian who is thinking about getting expensive work done on your car then do it now before prices go up.

In addition to raising the sales tax, Schwarzenegger is proposing expanding its scope to include some services such as vehicle, appliance and furniture repair.

Veterinary services too. Better get Fido's teeth cleaned in December before the tax goes in effect on January 1.

Living standards will take a hit.

Based on the governor's figures, a 11/2-cent sales tax increase would cost the average California household about $300 annually, although the actual amount is likely to be less because of spending by businesses and tourists.

This is a scene of coming attractions for the nation as a whole. Retiring baby boomers combined with growing numbers of low skilled Hispanics will cut tax revenue while boosting demand for government hand-outs and services. We face higher taxes in our future.

Most of the new budget gap opened up in the last few weeks.

The latest estimate of the budget deficit for the current fiscal year, which ends June 30, is nearly four times larger than what the state Department of Finance estimated a month ago.

In California's legislature a supermajority (two thirds) is required to vote tax increases. If the California constitution ever gets amended to remove that supermajority requirement then the taxes will hit the stratosphere. As it stands now the dwindling Republican ranks in the legislature have managed to block most attempts by the Democrats to raise taxes.

Schwarzenegger's call for tax increases puts him again at odds with legislators in his own party. Republicans, a minority in both houses but strong enough to block spending plans, were steadfastly against raising taxes in the last budget, and the state Senate's GOP caucus chairman said that won't change.

But the decline of the white population and the rise of the Hispanic population will eventually make the Republican position in the legislature too small to hold back big tax increases. Those coming tax increases will accelerate the flight of productive people out of California.

Share |      By Randall Parker at 2008 November 06 10:03 PM  Politics Redistribution

Kenelm Digby said at November 7, 2008 4:03 AM:

Don't worry - as long as there are enough wetbacks to pick cabbages Clifornia will be just fine.
- That clever man in the Wall Street Journal told me so.

Ned said at November 7, 2008 7:06 AM:

If you want to know where California and the US are headed, take a look at this (from Wikipedia):

Argentina benefits from abundant natural resources, a highly literate population, an export-oriented agricultural sector, and a diversified industrial base. It was once one of the world's wealthiest nations.[31] Even during its era of relative decline between 1930 and 1980, the Argentine economy created Latin America's largest proportional middle class;[16] but this segment of the population has suffered from a succession of economic crises between 1981 and 2002, when the relative decline became absolute.

Argentina's economy started to slowly lose ground after 1930[33] when it entered the Great Depression and recovered slowly, afterwards. Erratic policies helped lead to serious bouts of stagflation in the 1949-52 and 1959-63 cycles and the country lost its place among the world's prosperous nations, even as it continued to industrialize.[16] Following a promising decade, the economy further declined during the military dictatorship that lasted from 1976 to 1983 and for some time afterwards.[34]

During this period, the military dictatorship took out large loans with high interest rates from, among others, the IMF and encouraged the private sector to borrow massively from foreign private banks. The country engaged in a disorganized and corrupt financial liberalization that interrupted industrial development and upward social mobility in Argentina; over 400,000 companies of all sizes went bankrupt[16] and economic decisions made from 1983 through 2001 failed to revert the situation.

Record Foreign debt interest payments, tax evasion and capital flight resulted in a balance of payments crisis that plagued Argentina with serious stagflation from 1975 to 1990. Attempting to remedy this, economist Domingo Cavallo pegged the peso to the U.S. dollar in 1991 and limited the growth in the money supply. His team then embarked on a path of trade liberalization, deregulation and privatization. Inflation dropped and GDP grew by one third in four years;[32] but external economic shocks and failures of the system diluted benefits, causing the economy to crumble slowly from 1995 until the collapse in 2001. That year and the next, the economy suffered its sharpest decline since 1930.[32]

In 2002, Argentina had defaulted on its debt, its GDP had shrunk, unemployment reached 25% and the peso had depreciated 70% after being devalued and floated.

HellKaiserRyo said at November 7, 2008 8:11 AM:

I pity you Randall, you are very smart, but you do not have the resources to actually make money on the fall of California.

I do not either, but it seems that betting on increased risk of default in California and shorting their bonds seems too tempting for me to pass up if I were a hedge fund manager.

kurt9 said at November 7, 2008 10:20 AM:

I think the California state government (and the local governments) has entered the financial death spiral. Everyone blames this on those spendthrift democrats in Sacramento. However, it is the majority of CA voters that put them there time after time. I believe that the CA voters lack the moral backbone to give up their entitlements and reign in government spending. The death spiral will not be immediate. Rather it will be a protracted affair that will go on for some years. I expect the state government to become bankrupt sometime between '15 and '20.

Of course, the Feds will try to bail them out (especially if the liberal-left remains in power). However, this will not solve the problem. It will only delay the inevitable.

Wolf-Dog said at November 7, 2008 11:10 AM:

Ultimately, it is likely that the U.S. will be forced to legislate to balance the foreign trade deficit, with the intention of stopping domestic unemployment. The current annual trade deficit of $700 billion, is simply too high a percentage of the GDP year after year. Europeans would also do the same.

Kurt10 said at November 7, 2008 4:31 PM:

Nah. It's the GD democritter spendthrifts in Sacramenty. Those fools have been driving CA into the ground since old Willie was speaker. They've got a death wish hardon for the entire state, believe it.

Peter Hausberg said at November 8, 2008 8:42 AM:

Trust me....in California there is no such thing as a "temporary sales tax". If passed, it'll be with us forever.

Big Bill said at November 8, 2008 2:54 PM:

I wonder when all of those illegals and other immigrants are going to start making California a better place.

Now that they have taken all the good paying jobs that white folks wouldn't do, you'd figure the California tax base would be astronomical.

Only problem is getting them to actually use their real names, to get paid over the table instead of under, and o get them to stop offshoring every nickel they make back to the motherland.

What I want to know is how to get my own matricula consulaire like they do and start my own tax-free bank account. Other than cruising MacArthur Park, any idea how I might snag one and a tax-free Mexican identity to go along with it?

Kenelm Digby said at November 10, 2008 3:35 AM:

What is lost in all the talk about immigration is the one essential feature 'productivity'.
If the productivity of the immigrants (as is the case in California) s significantly lower than that of the natives, then by simple mathematics it is obvious that the importation of the immigrants causes average wealt per capita - and therefore tax revenues to decline.
So muc for the lettuce pickers 'saving' California.

David said at November 24, 2008 6:00 AM:

What can I say. I left California two years ago. My wife and I were paying $1000/month in state income taxes alone. We moved to Texas which has no income taxes. I do not know how Texas does it. But, the roads are nice, crime is less. all of the public services that I experience are better then California. It just doesn't cost very much.

It seems to me the only rational move is to leave California.

WRZ said at December 6, 2008 7:37 PM:

Professional sports franchises are making billions
of dollars at the expense of the rest of society
and they could put a 20% surcharge tax on MLB, NBA,
NHL and NFL tickets to these sporting events as
far as I am concerned. Especially when you consider
that they have used extortion in our largest cities
to force city officials to waste hundreds of
millions of dollars to replace existing stadiums
with newer ones or risk losing their team.
I'll believe we are in a recession, when I see that
sports franchises can no longer afford to pay illegal
aliens $20 milion a year for hitting or throwing a baseball.

There are only 3 states (Hawaii, New Mexico and South Dakota)
in the entire country that have a tax on veterinary services
and none of them have the resources of California.

WRZ .....
ccdogpark at yahoo.com .....


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