California Budget Fix Onerous to Taxpayers

Judy Lin

SACRAMENTO -- When they plugged California's $42 billion budget hole in February, Gov. Arnold Schwarzenegger and the state's legislative leaders said everyone had to give up something to repair the state's finances.

That sentiment did not extend to California businesses and corporations with significant operations in the state.

All the tax hikes in the two-year budget plan -- a boost in the sales tax that took effect Wednesday and increases in the personal income tax and vehicle license fee -- fall squarely on the shoulders of working Californians. That's a solution that so far makes California unique among states struggling with budget deficits and runs counter to the approach of the Obama administration, which is championing tax cuts for low- and middle-income Americans.

The decision also is beginning to feed the backlash over five budget-related measures lawmakers are asking voters to approve during a special election in May.

Anti-tax groups have begun a campaign to defeat the ballot measures, saying the budget package places too much of a burden on taxpayers in a state that already has a reputation for high taxes. Supporters of the ballot measures, including the governor, say the changes would help stabilize an unwieldy budget process, which relies too much on the volatile earnings of high-income households.

A recent poll shows the propositions in trouble, including the one Schwarzenegger wants most -- a measure that would implement a state spending cap in exchange for extending the taxes an additional one to two years. Just 39% of likely voters support that measure, Proposition 1A, with 46% opposed, according to the Public Policy Institute of California survey.