When are ‘fees’ not new taxes?

Times Staff Writers

On no point has Gov. Arnold Schwarzenegger been more steadfast than his aversion to new taxes.

The governor based his reelection campaign largely on the argument that his Democratic opponent was committed to an unacceptable regimen of tax increases.

Now, Schwarzenegger must rally support for a healthcare overhaul that, in the eyes of business leaders and many lawmakers, relies on billions of dollars in new taxes.


As part of a plan that promises healthcare for all Californians -- the centerpiece of his policy agenda this year -- Schwarzenegger wants to raise $1 billion in revenues from businesses and more than $3.7 billion from hospitals and doctors.

Whether he succeeds will depend on his salesmanship. He will have to persuade influential business interests that what he is pitching is not a tax increase as commonly understood, but one component of a larger solution to a healthcare crisis marked by rising costs and spiking premiums.

It is not new taxes that he want to impose, the governor says, but “fees.”

That’s a thorny issue: A new tax would require a two-thirds vote of the Legislature -- something that could be difficult for Schwarzenegger to pull off. Republicans’ votes would be needed in that case, and some have already signaled their opposition.

A “fee” can be passed by a simple majority, which would require no Republican votes. Should Schwarzenegger and his legislative allies draft a healthcare bill that defines the levies as “fees,” the whole matter would probably wind up in court.

Business leaders and conservative lawmakers were not immediately buying the governor’s proposal.

“It is disappointing that just 72 hours into his [second term] he’s shattered the central campaign pledge upon which he won reelection -- not to raise taxes,” said state Sen. Tom McClintock (R-Thousand Oaks), who ran unsuccessfully for lieutenant governor last year with the governor’s support.

“I think it’s ironic,” McClintock continued, “that a governor who just proclaimed himself a centrist would come up with a proposal well to the left of the one presented by Senate President Pro Tem Don Perata,” a Democrat from Oakland.

Schwarzenegger, who is still recuperating from a broken leg, intends to make appearances throughout the state in coming weeks to build a consensus for his proposal. Looming as an obstacle is his history of emphatic opposition to new taxes.

During his televised debate with Democratic challenger Phil Angelides in October, Schwarzenegger smiled and said to his rival: “I can tell by the joy ... in your eyes when you talk about taxes, you just love to increase taxes.”

The governor took a no-new-taxes pledge during the campaign. After winning the November election, he said in a televised interview: “I think that’s what we need to do. Never raise taxes; it wouldn’t happen.”

Schwarzenegger’s antipathy to new taxes seemed the one constant in an evolving governing philosophy. That kept intact his support from anti-tax fiscal conservatives.

In 2003, he cast himself as a conservative Republican. In his inaugural address last week, he proclaimed himself a “post-partisan” centrist. Whatever Schwarzenegger was, it seemed he would never raise taxes.

So his healthcare proposal may force a reevaluation.

Even one of the governor’s closest political allies, the California Chamber of Commerce, swept aside Schwarzenegger’s argument Monday that his proposed financing arrangement is not really a tax.

In a statement, chamber president and chief executive Allan Zaremberg, who has helped the governor raise millions in campaign money, asked, “What effect will a new 4% payroll tax have on employers in California? How will small businesses that cannot provide health insurance today afford the new tax? How will it affect employment in our state and our state’s economic competitiveness?”

Jon Coupal, president of the Howard Jarvis Taxpayers Assn, said: “It would be extraordinarily difficult to argue this is anything other than a tax. It is a government exaction that is not voluntary. The consequences of not paying it are substantial penalties. How is that not a tax?”

Anticipating the protests, administration officials said the proposal needs to be examined in a fuller context. All Californians are now paying a “hidden tax” -- $1,186 per family, according to one estimate -- because of the costs of providing treatment for the uninsured, the officials contend.

Were the governor’s proposal adopted, more people would be insured, expanding the number of customers for doctors and hospitals, the officials said. And businesses that now cope with fluctuating healthcare costs would see more predictability under the new system.

“The key to Schwarzenegger’s ability to sell this is going to be the ‘hidden tax’ argument,” said Dan Schnur, a former aide to Republican Gov. Pete Wilson. “He needs to be able to effectively make the case that this represents a tax shift from overburdened families to businesses that aren’t fulfilling their responsibilities” by not providing healthcare.

Those who’ve endured the governor’s scorn for favoring new taxes see an irony in his predicament. During the governor’s race, hardly a day passed when Schwarzenegger’s campaign aides neglected to remind the public that Angelides had proposed a tax increase. Now, it is Schwarzenegger who could be tarred as a tax-and-spender.

The healthcare proposal “really demonstrates that the fundamental attack on Phil Angelides -- that they did over and over and over and over again -- was bogus and false,” said Bill Carrick, who was an Angelides campaign strategist.

“And now,” he said, “the governor has essentially adopted the very same policies.... It’s the hall of fame of hypocrisies.”