Stop Schwarzenegger’s $22 billion tax increase
On his second day in office, Governor Schwarzenegger proposed a whopping
$15 billion bond. The estimated tax cost for our children and
grandchildren: $22 billion. Stop the massive tax hike!
On his second day as Governor, Arnold Schwarzenegger announced
plans for an unprecedented Fifteen Billion Dollar bond that would
burden middle income and working Californians with a tax increase for a
generation to come.
The State Treasurer reports that Arnold Schwarzenegger’s bond
would saddle our children and grandchildren with an added tax cost of
$22.6 billion over the next thirty years, compared to the cost of
financing bonds with a dedicated stream of revenues over the next five
Candidate Arnold Schwarzenegger promised to balance the budget,
cut taxes and preserve programs. When asked how he could pull off this
feat, his glib answer was: “We’ll work out the details later.” On his
first day in office he cut the current year’s vehicle license fee,
creating an immediate shortfall of almost $4 billion to California
government. It looks like a tax cut but it’s really smoke and mirrors.
What the governor gave taxpayers with one hand he is taking back with
the other hand ‘ plus interest.
No special effects department in Sacramento
The governor wants the legislature to place a $15 billion bond
on the March 2004 ballot. He’s given the legislature until December 5
to approve the bond. On November 25 he finally revealed the details of
the bond. It’s not a pretty picture.
Gov. Schwarzenegger’s bond is a general obligation bond.
Historically, California has used such bonds to pay for long-term
capitol projects, such as building schools, roads and airports.
Gov. Schwarzenegger’s use of general obligation bonds to pay
for current year spending is unprecedented. It’s irresponsible.
California’s constitution requires a balanced budget. Gov.
Schwarzenegger would create the illusion of a balanced budget by
mortgaging our future to pay for current costs.
A massive tax burden for our grandchildren:
- Arnold Schwarzenegger’s vehicle license fee reduction is deceptive.
Taxpayers get a quick reduction, but the $4 billion we save this year
is put into the bond, costing billions more to pay off over 30 years.
- The Schwarzenegger bond will overwhelm the bond market with debt,
forcing up the interest rate. The last state general obligation bond
was issued at a 5.2% interest rate. The estimated cost of the
Schwarzenegger 30 year bond is 6.64%, nearly 1.5% higher than the
interest rate that we are paying now. The higher the interest rate, the
more taxes we will have to pay.
- The Schwarzenegger bond will cost California taxpayers $22.6
billion more to repay over 30 years, compared to issuing five-year
bonds with a dedicated funding stream.
- The Schwarzenegger bond will cost each California household about
$3000 to repay as compared to about a $1000 cost for the budget bond
approved by the legislature this year.
- The Schwarzenegger bond will increase California’s debt service
costs to over 7% of the total California budget. More and more of each
year’s budget will go to paying off the bond and will not be available
for education, police and fire, health care and other services. The
independent Legislative Analyst’s office warns against a debt service
ratio of over 6%.
(Source: Comments of State Treasurer Phil Angelides to Senate and Assembly Budget Committees, November 25, 2003).
Instead of an increased tax on working California families, the Consumer Federation of California urges:
- Close corporate tax loopholes that serve no worthwhile public
policy. It is estimated that California gives away some $4 billion a
year in special interest corporate tax credits that do not provide
California citizens any measurable benefit. Instead of raising taxes on
workers, we should eliminate corporate pork.
- Raise the tax brackets on the top 2% of taxpayers. A temporary 0.7%
tax surcharge on families earning over $275,000 and 1.7% charge on
families earning over $550,000 would bring in $2 to $3 billion a year.
Over five years this would pay for the budget shortfall and hold down
the interest rates of any short-term bonds.