The vehicle license fee, or "car tax", fluctuated between 1.3% to 2% since it was first introduced in 1935. When Schwarzenegger took office in 2003 at the height of the SUV craze, he slashed the rate down to 0.65%. Skelton writes that it was a politically expedient move that did irreparable damages to the state's economy.
"Problem was, virtually all the vehicle license revenue went to local governments. The state had been reimbursing them - 'backfilling' in Sacramento jargon - for their losses after the rate had sunk below 2%. Schwarzenegger insisted on continuing to backfill even though the state was going broke. His tax cut actually went on the books as a spending increase. Schwarzenegger's solution: Put it on the credit card. The state's still trying to pay it off. The largess for local government was costing $4 billion annually then. Now, it's up to $6 billion - roughly the size of the state's ongoing 'structural' deficit," he elaborates.
While there is talk in Sacramento to raise the fee to 1.15% through a ballot initiative next year, the prospect of voters approving a tax increase is slim. Skelton asserts, "Californians think that ludicrously low car taxes - and all property taxes - are their birthright."
