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Governor Schwarzenegger Proposes Tax Increase

California Governor Arnold Schwarzenegger is moving to end the stalemate over a state budget by offering a compromise spending plan. The plan calls for additional cuts and a 1 percent sales tax increase. In the past, the governor has said he is against raising taxes. But with the budget two months overdue he's changed his mind.


Schwarzenegger says it's time to find a middle ground between taxes and cuts to state programs.


Schwarzenegger: But I think it's time for the dialogue to stop and to create some action. And it's time for everyone to compromise and get this down once and for all. Republicans must step out of their ideological corner on the right and Democrats must step out of their ideological corner on the left.


California was supposed to have a budget in place by July 1, the start of the fiscal year. But lawmakers differ over how to close the $15.2 billion deficit.


Republicans have been adamant about not raising taxes, while Democrats proposed a combination of cuts and tax increases.


Schwarzenegger's latest proposal seeks an additional $2 billion in cuts and a temporary sales tax increase. The state sales tax would be reduced to something below its current level after three years.


The governor's plan also includes a formula for a rainy day fund to smooth out state spending when the economy declines.

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