They're raising taxes in California, oh my!

Word comes from Sacramento this morning that Gubernator Hoovernator Arnold Schwarzenegger and state legislators have reached a tentative deal to solve the massive $40 billion budget shortfall.

As might be expected from the state with one of the biggest housing bubbles and some of the most profligate government spending in recent years, the news isn't good.

There are a raft of spending cuts, but here's a summary of the tax increases:

• State sales tax to increase one cent from roughly 8 percent to 9 percent, depending upon the area, almost 10 percent in some areas
  
• State income taxes to rise either 2.5 or 5 percent across the board via a "surcharge", depending upon the amount of Federal assistance, boosting the effective marginal tax rate to either 9.5 or 9.8 percent for amounts over $40K
• Gasoline tax to increase 12 cents to 39 cents a gallon for a total tax of 76 cents per gallon
  
• Vehicle license fees to almost double, from the current 0.65 percent of a vehicle's value to 1.15 percent

That's really going to add up - on a percentage increase basis, that's about a 12 percent boost for sales tax, a 2.5 to 5 percent increase in income tax, a 44 percent increase in the gasoline tax and a whopping 77 percent increase in the vehicle tax.

According to this report in the Sacramento Bee, it's not clear whether this budget will pass in a vote scheduled for tomorrow and there are all sorts of additional provisions still being negotiated that could cause another delay.

As a trade-off for new taxes, Republicans demanded a limit on future state spending. Under the tentative agreement, the restriction would require the state to place money into a rainy-day fund after reaching a limit determined by state revenues over a 10-year period.

Voters would have to approve the spending limit, likely in a special election later this year, and it is particularly controversial among education groups that constantly seek more state money for schools. Concerned that the state's powerful teachers union would try to kill the spending restriction at the ballot, budget negotiators included a provision that would extend the major new taxes by one to three years if the spending cap passes.

The vast majority of legislative Republicans have signed pledges not to vote for new taxes. Senate Republican leader Dave Cogdill said he could not guarantee votes, but told his members that the deal is as good as they're going to get.

"I've negotiated it to the point where I think it doesn't get any better," he said Wednesday, emerging from a private GOP caucus. "We're waiting to see all the language and all of that, so I'm not ready to commit who the votes will be at this point."
...
State leaders are counting on voters approving a plan to borrow $5 billion this year against future California Lottery revenues. The state would obtain another $5.5 billion in costly short-term loans with no defined way to pay it back by 2011. California would first use federal stimulus money to eliminate that borrowing.

What's most interesting about all of this (and, since we're leaving the state in a matter of months, it's all just a passing interest at this point) is that the vehicle license fees were a central part of Arnold Schwarzeneggar's 2003 election campaign.

That is, back when an internet bubble was in the process of morphing into a housing bubble.

Shown below is one of our DMV renewal slips from back in 2003. If memory serves, the VLF offset was instituted sometime during the internet stock market bubble when the state was flush with cash and elected officials were providing "tax relief" to their lucky constituents.

Without the state's generous "offset" we would have had to pay $643 to renew the registration for just one vehicle and the state always reminded taxpayers of the break they were getting.
A back-of-the-envelope calculation indicates that a good portion of that offset is coming back.