Schwarzenegger is getting tough. Terminator tough.

With a looming financial crisis (not the first that Schwarzenegger has faced as governor of California), Schwarzenegger is proposing a temporary penny sales tax increase to help balance the budget. As you can imagine, not everyone is happy about the proposal; Schwarzenegger is meeting some serious resistance from his Republican party colleagues who don’t want to see taxes raised at all. Yet, as the state faces the possibility of shut downs just over a month into the fiscal year, the Governor doesn’t see many other options.

According to reports, the new proposal would raise the sales tax rate by a penny for three to four years. After that time, the state would expect to drop the rate at least a quarter penny.

The sales tax rate in California is currently 6.25% – not bad, as state sales tax rates go. Many California counties charge at least an additional penny.

The idea of increasing sales tax rates in a tough economy isn’t new – it’s happening all over the country. But is it the right answer?

Nobody wants to pay extra sales tax – but my guess is that legislators are hoping that you won’t miss the extra money if it comes out at the register as opposed to out of your pay check.

So, I’m curious. If your state opted to increase your income tax by 1% or your sales tax by 1%, which would you choose?

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Author

Kelly Erb is a tax attorney and tax writer.

Comments

  1. I’m very frugal in my spending, so Sales.

    Also I’m very anti poor. I’m not against poverty, I just don’t like poor people. And since Sales Taxes hurt the poor more than the rich* – a sales tax would also be fun for me on that level.

    *THE ASSOCIATED PRESS, “State tax system hurts poor.” Wednesday, January 8, 2003
    http://seattlepi.nwsource.com/local/103213_taxstudy08.shtml

  2. I don’t think it makes that much difference, but with the sales tax, at least one FEELS that one has some control over it — I can pay less tax by buying less stuff, so there! With the income tax hike, it’s just one more onerous levy by Big Government Over Which We The People™ Have No Control, so it beats you down.

    So yeah, I’d vote for the sales tax, even if it would end up costing me more.

  3. I live in the Los Angeles area. In the areas I’ve been too in my vicinity, the sales tax is 8.25%. I guess the county tax is 2% then.

  4. Another Tax Geek, CPA Reply

    Definitely sales tax.

    But my first choice would be for gov’t to cut spending when revenues are down.

  5. Income tax! I can deduct state income tax on my federal return, but not sales tax.

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