Arnold Schwarzenegger Tax Increase: Anatomy of a Broken Promise

California Gov. Arnold Schwarzenegger has unveiled his long-awaited universal healthcare plan. A centerpiece of that plan is a new 4% payroll tax on any business with 10 or more employees, as well as a 4% tax on hospitals and a 2% tax on doctors. This represents a clear and direct violation of the governor’s campaign pledge not to raise taxes.

Schwarzenegger’s staff is trying mightily to spin it otherwise, calling his tax hike ideas “fees” not taxes. This should be opposed for two reasons: the governor’s own claims during his campaign against Phil Angelides, and the California constitution’s protection against the Legislature raising taxes without a two-thirds vote of approval.

During Schwarzenegger’s re-election effort, he rightly lambasted Angelides for wanting to increase taxes. In a Los Angeles Times article dated Oct. 19, 2006, columnist George Skelton wrote that $7 billion of the $18 billion in claimed tax hikes hung around Angelides’ neck by Schwarzenegger were, in fact, employer mandates to provide health insurance. Angelides tried to deny it. And Skelton’s comments were echoed by numerous political writers and editorialists. All to no avail. Schwarzenegger called it a “tax” so it was a “tax.”

Now that Schwarzenegger is proposing an even larger plan than Angelides did to fund his universal health care plan, “taxes” have magically transformed themselves into “fees.” (I wonder if voodoo verbiage services will be covered under ArnoldCare?)

The other reason the difference between a “tax” and a “fee” matters has to do with the required vote thresholds in the Legislature. Tax increases need a two-thirds vote for approval, fees, only a simple majority. If the Schwarzenegger administration rams a majority vote “fee” increase through the Legislature with the help of Democrats, look for the Republicans to sue all the way to the state Supreme Court to protect taxpayer rights as well as the constitutionally protected right of the legislative minority to block all but the most widely agreed upon tax increases.

It stands to be a very interesting year in Sacramento.