Recall the car tax?
Gov. Arnold Schwarzenegger has shown he’s capable of learning. Not every governor who rode into office on a no-new-taxes pledge would propose a sales-tax increase of 1.5%. He’s right to insist that every solution to the state’s fiscal crisis be on the table, so we’re happy to pitch in with a suggestion -- bring back the car tax.
There, we said it. Again. California’s leaders took a wrong turn in 1999 when they slashed the vehicle license fee, or car tax. The move frittered away a rare revenue surplus that should have been used instead to fix the state’s structural deficit. The plan supposedly called for the rate to go back up during fiscal crises to the same level it had been since 1948 -- 2% of vehicle value. But when then-Gov. Gray Davis tried to do just that, Schwarzenegger fanned voter anger and booted Davis from office.
It’s not out of a sense of mischief that we now call on Schwarzenegger to bring the tax back to its historical level. Not solely, anyway. The car tax is a smarter choice than a sales tax for digging out of the current budget hole. Asking Californians to pitch in through their vehicle registration fees rather than at the cash register would have fewer negative effects on sales, which we can expect to be diminished too much already in the coming months.
Sales taxes are regressive: They take a higher percentage of household income from the poor than from the rich. A 1999 California Policy Research Center study found vehicle license fees to be nearly as regressive, but at least the proceeds are unrestricted and could be used to bail the state out of its mess. Because of voter fiat, sales taxes paid at the gas pump are off limits for any use but transportation. Local government also claims a share. Another advantage of car taxes: They are deductible from federal income tax. Try deducting your sales tax on your 1040 form and see how far you get.
Schwarzenegger already has swallowed his pride a bit on car taxes: He’s proposing that each vehicle owner pay $12 more. But that’s an especially regressive fee, imposing barely an irritant on a wealthy motorist while packing a wallop for a low-income one. The state can do far better for itself and its residents by returning to the tried-and-true vehicle license fee.
Any tax hike will cause pain, but not nearly as much as the deepest budget cuts the governor is proposing. And sales taxes are already rising: If the 1.5% state increase is adopted, the rate in two Los Angeles County cities will be 11.25%, and just a penny less in the rest of the county. That’s not the way to go. Cutting the car tax helped get us into this mess. Restoring it to the rate that served California for 60 years can help get us out.