Will a service tax save the state budget?

May 2, 2008 6:35:07 PM PDT
Governor Schwarzenegger says he is opposed to raising taxes to help with California's budget shortfall, but his office is holding conversations about what to tax if he changes his mind.

Instead of raising the sales tax, applying it to a range of services might be the way to go to solve the state's budget crisis. The governor's people may be testing those waters with an old ally.

Golfers chasing that elusive birdie might have to cut back on lessons, if that makes the list of services to be taxed.

"Golf lessons are always a 'want.' Some of us consider it a 'need.' I would say that if it's a 'want,' it might have to take a back seat," says golfer Jeff Baldo.

Women seeking that perfect coif might cut back on salon visits.

"Whose wallet really wants to pay taxes? Nobody likes to pay taxes," says hairstylist Jennifer Butler.

A sales tax on car repairs, health club memberships, landscaping, accounting work and lawyer fees is gaining traction at the State Capitol. In fact, sources outside the Schwarzenegger administration say the governor's aides are feeling out the business community behind closed doors, asking members what kind of taxes they would resist the least.

The governor's office denies it's laying the groundwork for raising taxes.

"He's open to people coming in and talking about all their ideas. He's open to having a debate about raising taxes and explaining to them why he thinks it's the wrong way to go. But the governor is not having meetings to talk about the eventuality of raising taxes," says Aaron McLear, the governor's press secretary.

The usually anti-tax business community might be swayed if there were long-term fixes to the budget crisis. Some say if the governor got the business community behind him on raising taxes, Republicans would go along, but not even that would change their minds.

"When it comes to tax policy, the worst thing a government can do is to increase taxes in the face of a declining economy," says Republican Assemblyman Roger Niello of Sacramento.

To avoid severe cuts to education, polls show more Californians are coming around to the idea of raising taxes to lessen the blow.

"We live here in California. We reap the benefits of everything that comes from our government. So, sometimes we have to help them out, too," says Merrill Domondon, a tax hike supporter.

Many other states already applya tax to services, so it's not an unusual idea. But keep in mind, California already ranks fourth in the country for tax burdens per household.


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