Gov. Arnold Schwarzenegger announced this month that he would create a commission to study an overhaul of California's tax system.
Only days later, however – and before anyone had actually been appointed – Schwarzenegger jumped the gun by proposing significant changes in state taxes, extending the sales tax to some services and imposing a first-ever tax on oil production. They were part of a nearly $5 billion revenue package aimed at closing some of the state's whopping budget deficit, coupled with a like amount of spending cuts.
Within nanoseconds, the Capitol's more than 1,000 lobbyists and their clients surged into action. Groups that would be affected by proposed cuts – the powerful Education Coalition most prominently – began beating the drums of resistance. And business sectors that would feel the higher taxes also mobilized.
The Chinese symbol for crisis, it's said, also denotes opportunity, and the fiscal crisis is an opportunity for professional advocates to rack up more lobbying fees.
Not only are the well-established stakeholders in the budget – unions, local governments, school districts, etc. – cranking up, but business groups that ordinarily pay only passing attention to fiscal machinations have perked up. And some opportunistic lobbying firms are calling businesses that ordinarily don't play in the Capitol arena, advising them of the potentially adverse effects of the governor's taxes and offering to help.
It is, as they say, a target-rich environment because of the Schwarzenegger plan's broad reach. Boosting the sales tax by 1.5 cents per $1 of sales, for instance, affects every retailer of taxable goods such as cars and clothes. Suddenly their prices would be boosted by 1.5 percent – $450 in the case of a $30,000 car, for instance.
Meanwhile, his proposal to extend the sales tax to appliance, furniture and auto repairs, rounds of golf, animal medical care, and amusement park and sporting event admission brings new players into the political game, and other service providers are on high alert that they could be tapped.
Service industries to be taxed complain they are being singled out while other comparable and competitive services remain tax-free. It does sound a bit odd, for example, that amusement park and sports tickets would be taxed while admission to auto races, concerts, plays and movies would not.
Does that have something to do with Schwarzenegger's pre-political career in entertainment? While he would tax some forms of entertainment, he wants special tax breaks for his old pals in the movie business.
And then there's the oil severance tax, which Democrats have favored for years. It's supposed to be popular because of the recent surge in gasoline prices, but does anyone doubt that were the tax to be imposed, it would find its way into the pump price?
The outcome of California's great tax battle is still very uncertain. But the Capitol's lobbyists hope it never ends.