As our nation faces an economic crisis the California state budget is also faltering. Last Thursday Gov. Arnold Schwarzenegger announced he wants to close an $11.2-billion gap by increasing sales tax on a variety of commonly purchased items including cars alcohol and amusement park and sporting event tickets.
Even after cutting $7.1 billion in government spending the state is not bringing in enough revenue to support essential government programs according to the governor. Schwarzenegger’s plan would increase sales tax by 1.5 percent raise the oil pumping tax 9.9 percent and increase the cost of car registration by $12.
Also since the unemployment insurance fund is extremely low his plan would make it more difficult to obtain unemployment benefits. The proposed plan would last three years and bring in an additional $4.7 billion.
Schwarzenegger has called for tax cuts throughout his political career but he holds that a tax increase is the only option. He recently stated: “I’m not a believer in taxes I’m not a believer in increasing fees. It’s just under these circumstances it’s necessary to do so.”
Schwarzenegger’s plan could cause further economic deterioration. Gas prices have conveniently lowered almost $2 per gallon since our nation fell into economic crisis mode. A tax hike on oil industries could drive gas prices back up to more than $4 per gallon – a price many Californians may not be able to afford with the rising rate of unemployment. Further restricting eligibility for unemployment benefits coupled with the increased gas prices could force many people to declare bankruptcy.
Moreover the need to save for an expensive necessity like gas will not help the suffering retail industry. According to the ICSC-Goldman Sacs index this has been the worst October for retail since the index’s creation in 1969. With such a grim sales outlook for the Christmas season many stores will face bankruptcy by Jan. 1.
The car industry will also take a hit if Schwarzenegger’s tax plan passes. Leaders in the industry are thus strongly advocating against it. President of the California New Car Dealers Association Peter Welch said: “The fact of the matter is we are in a historic car recession [that’s] bordering on a depression. We actually think we need an economic stimulus to get people to come in and buy cars. This is just the opposite.” The tax would substantially affect the price of cars tacking on hundreds of dollars.
At the same time though the plan’s tax on other items may not be so detrimental. Consumers would barely notice a 1.5 percent increase on amusement park and sporting game tickets. And let’s face it – people are never going to stop buying alcohol.Regardless Schwarzenegger’s plan is not likely to pass. It has not garnered much support from either party because Republicans oppose tax hikes and Democrats don’t like service cuts.
The economic crisis is a multifaceted monster. The California government’s attempt to raise revenue could spark a host of problems to fuel the recession that is currently enveloping us. If the government deems increased sales tax essential it should raise taxes on items inexpensive enough that consumers will not feel the price increase or on nonessentials that people will always continue to purchase like alcohol. The car industry is already taking a hit.
The Governator should not tax essential items or implement legislation that will plunge a faltering industry further into recession.