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Is the Calif. sales tax hike too much?

August 21, 2008 12:00:00 AM PDT
Governor Arnold Schwarzenegger's (R-California) proposal to temporarily raise the sales tax by 1 percent is worrying struggling Californians.If adopted, it would cost a typical family of four an added $500 per year.

At Wal-Mart, where dollars can go a little farther, budget-conscious shoppers say they can't afford it.

"Wow ... that is high. That's ridiculous ... especially with gas prices; they're so high already. And they're going to raise up the tax prices? No!" said Angie Lee, who is trying to be a penny pincher.

Critics call the sales tax hike regressive. It hurts low-wage families the hardest because a larger percentage of their income will go toward paying sales taxes.

Last year, those who made $18,000 or less spent almost 8.5 percent of their earnings on sales tax. While the wealthy, making more than $430,000 a year, forked over less than 1 percent.

Anti-tax groups say this could send the poor over the edge.

"It's like throwing a drowning person a cinderblock instead of a life preserver," said Jon Coupal, Howard Jarvis Taxpayers Association.

The Governor considered targeting only the rich and taxing their income even more. However, income tax fluctuates too much, so he opted for the sales tax instead.

"It's not a question of rich versus poor. It's a question of what, in the short term, is a more stable source of revenue to help get us through to better times," said H.D. Palmer, California Department of Finance.

While Democrats have been pushing for tax hikes to help get California out of its $15 billion hole, the Chairwoman of the Revenue and Taxation Committee says this tax proposal puts her party in a bind.

"A sales tax ... or any kind of tax increase ... is going to hurt people in the pocketbook. On the other hand if we don't do something to increase taxes, we're going to have to cut programs that affect those very same people hardest," said State Senator Jenny Oropeza (D-Revenue & Taxation Committee Chairwoman).

Under the Governor's proposal, after three years, the sales tax would actually be cut below what it is today; working as sort of a tax rebate. In that case, low-income families would actually benefit the most. However, there is no guarantee the temporary tax is actually temporary.

 

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