Schwarzenegger Holds Firm On 'No Tax' Pledge

by Leroy Baker, Tax-News.com, New York

10 July 2006

California governor, Arnold Schwarzenegger, has renewed his pledge that he will not raise taxes in order to balance the state government's budget, establishing clear blue water between him and his political opponent, Phil Angelides.

In an interview with the Sacramento Bee published last week, Schwarzenegger stated that he would "totally rule out" resorting to tax increases to close the state's ongoing deficit, which stood at $3.5 billion after the Republican governor signed a $131 billion budget package last month.

Schwarzenegger has consistently argued that spending cuts and measures to increase economic activity, and therefore tax revenues, is the way to bring California's fiscal finances back onto a sound footing, not increases in taxation.

"The key thing is to work and make sure that we keep our economy stimulated," Schwarzenegger told the paper.

"I mean, this is the very thing that has bailed us out so far. If you increase taxes, that would be the worst thing to do," he added.

By contrast, Phil Angelides, the current state treasurer and the Democrat who will run against Schwarzenegger in the November race for the governor's seat, wants to eliminate the deficit by raising income taxes on the highest earners and closing corporate tax loopholes.

"We know what Schwarzenegger will do next year if he's reelected," Angelides stated after the budget was signed. "He'll do exactly what he did before - raise the cost of living for middle class families by cutting school funding, raising tuition and fees, and cutting health care for children, the disabled, and the elderly. Middle class families will pay the price for Governor Schwarzenegger's budget."

Last year, Schwarzenegger vetoed several tax measures designed to boost business tax enforcement in the state.

Among the proposed measures passed by the state legislature but rejected by Governor Schwarzenegger were a 50% penalty for businesses which fail to turn over state sales taxes collected from customers, legislation allowing the salaries of employees who fail to pay their state taxes to be garnisheed, and a bill obliging California residents to pay state taxes owed under IRS judgments.

Schwarzenegger argued that the laws in question would have imposed an unfair burden on employers in the state.

However, by refusing to raise taxes, Angelides says that the state has been saddled with more than $20 billion in borrowing, in addition to a deficit of more than $3 billion next year.

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