Why California Should Increase Car Tax

George Skelton of The Los Angeles Times contends that one of Schwarzenegger's biggest blunders as governor of California was lowering the vehicle license fee to 0.65%.
July 11, 2011, 11am PDT | Jeff Jamawat
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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."

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Published on Monday, July 11, 2011 in The Los Angeles Times
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