Governor proposes 1 cent sales

Governor Schwarzenegger has repeatedly said the same Republican mantra during his four years in office.

"We will never increase taxes."

But, during this difficult housing market and a slow economy, which have meant less revenues for the state, the Governor appears to be slowly coming around.

Capitol sources say the Governor has proposed, behind closed doors, an immediate, but temporary one-cent sales tax for every dollar spent that could raise more than $5 billion dollars a year for a few years.

Later, the sales tax would drop below the current rate.

It's an idea he first floated in May.

"The good thing about this is after the tax increase ends, the money gets automatically rebated to the taxpayer," says Gov. Schwarzenegger.

The Governor would apparently back off the tax hike if he didn't get budget reform in return: such as a permanent state spending cap and a rainy day fund -- things the Democrats have been reluctant to support.

"I'm glad the Governor has come around to saying publicly what we've known all along. We have to have a tax in order to correct the problem that we're in right now. So, I say it's a start," says Senate President Don Perata.

Again, Republicans hold the key to the passage of any tax increase: two senators need to cross over and six assemblymembers. And, they are in no mood to close a multi-billion dollar budget deficit with a tax hike.

"No, I don't think there's any votes in our caucus. We believe we need to reduce spending," says State Sen. Jeff Denham.

With the state budget now more than a month late, political watchers say the Governor's leadership is facing yet another test.

"He will be criticized for breaking his pledge on taxes and that will hurt him with a number of voters. On the other hand, he'll look like he was a problem solver too, which will help offset some of the damage that will cause," says Kevin Spillane, GOP Strategist.

As if a deal isn't hard enough to pass, Democrat Nicole Parra now says she will not support a budget that coincides with a solution to solve the Central Valley farmers' water crisis.

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