Capitol Hill Blue Forums Political Issues Finance, the economy & Economics Schwarzenegger proposes tax hikes

Reporting from Sacramento -- Gov. Arnold Schwarzenegger unveiled a plan Thursday for a steep sales tax increase, new levies on alcoholic drinks and the oil industry, and deep cuts in services to wipe out a budget shortfall that is expected to swell to more than $24 billion by mid-2010. The linchpin of the plan is the sales tax increase -- 1 1/2 cents on the dollar -- that could raise $10.8 billion through fiscal 2009-10. In Los Angeles County, where voters Tuesday appear to have passed a separate half-cent sales tax hike to fund transit projects, the rate would shoot up to 10.25%. The statewide sales tax rate is now 7.25%.

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His solutions include a number of significant spending reductions, the biggest of which is an immediate $2.5-billion cut from schools and community colleges. And state workers would be required to take a day off without pay each month, as well as to sacrifice two of their state holidays.

And the governor proposed canceling dental insurance for poor adults on the state's MediCal program and lowering subsidies to the aged, blind and disabled. California's welfare subsidies also would be reduced.