California needs to refigure its taxes

Perhaps you heard the dealership’s radio spots over the weekend and into Monday: “Don’t tell Arnold!” The point being that it was the last few days to buy a car (or anything else) in California before the state sales tax increase. Arnold Schwarzenegger, the no-new-taxes governor, is now maligned in popular culture as the tax collector in chief after he presided over the February deal that finally got California a budget and warded off default, for now, but raised taxes for the next two years at least.

Today, April 1 -- no fooling, unfortunately -- Californians will see a full-cent increase in the nation’s highest sales tax rate, to 8.25%. But no one in Los Angeles County will pay that little. County add-ons already in effect mean that most buyers of clothes, books, electronics, automobiles and other hard goods, plus food served in restaurants, will now pay 9.25%. Add another half-cent in Avalon, Inglewood and El Monte, where voters tacked on local levies, and even more in Pico Rivera and South Gate for a stunning 10.25%. And that’s just until July 1, when sales taxes rise yet another half-cent countywide to follow the voter dictate of November’s Measure R tax for transportation.

Catch your breath and add it up. In July, Los Angeles County sales taxes will come in at 9.75%, and 10.25% and 10.75% in a handful of the county’s smaller cities.

Vehicle license fees -- the “car tax” that swept Schwarzenegger into office in the anti-tax recall of Gov. Gray Davis -- will rise from 0.65% of the vehicle’s purchase price (the value is adjusted downward annually when registration is renewed) to 1.15% beginning May 19. State personal income taxes rise this year as well.

FOR THE RECORD:
Taxes: A Tuesday editorial gave April 15 as the date the Commission on the 21st Century Economy is to release its report on tax restructuring. On Monday, Gov. Arnold Schwarzenegger signed an order extending the deadline to “on or before July 31, 2009.” —

If Schwarzenegger and state lawmakers had more breathing room, they most certainly would not have picked April Fool’s Day to raise sales taxes and a special election day to raise the vehicle license fee. They would not have chosen income tax month to launch their campaign for the ballot measure to extend the sunset date for these new taxes by two years, and the other measures to move funds around and hold the state’s finances together.

But that’s just the point. They were out of breathing room. Faced with two choices -- damaging and disastrous -- they chose the merely damaging.

And there should be no misunderstanding: The higher taxes Californians begin paying today will be damaging. One in 10 Californians is out of work, thousands each week face foreclosure, and many of the rest are trying to cope with a faltering economy. As the federal government cuts taxes and doles out money to states, the benefit for most Californians is countered by the increasing difficulty of making daily purchases. The economic stimulus of federal dollars must combat the deadening grip of higher state taxes.

The state is in dire need of tax reform, but taxpayers should not be misled into thinking that the higher taxes they are now paying constitute reform. They are, instead, a response to an emergency. They don’t answer the basic questions: Which Californians are paying too much? Which are paying too little? Which taxes raise the most revenue with the least effect on the economy?

These are among the questions to be answered by the Commission on the 21st Century Economy in its report due in two weeks, on tax day. California has had numerous blue-ribbon panels on tax reform in the past, but their unimplemented reports gather dust in archives. If the state is to avoid new rounds of self-defeating emergency taxes, leaders, policymakers and voters must take the issues addressed in the report seriously.

Taxpayers must also recognize that although the measures on the May 19 ballot may or may not be part of an appropriate response to the current budget emergency, and may or may not take a necessary step toward budget reform -- The Times is poring through the issues and will weigh in with recommendations for voters later this month -- our problems won’t be over after the election. Some seek a constitutional convention to settle long-standing questions about how we tax, manage and govern ourselves. If hard times bring opportunity, California may be on the brink of a somewhat frightening, but perhaps promising, opportunity of a lifetime.