California Gov. Arnold Schwarzenegger has a $16 billion budget deficit dilemma on his hands. He insists he doesn't want to cut education. But he proclaims with equal fervor that he won't raise taxes.
So what's a post-partisan governor to do? Close tax loopholes, of course.
Now one governor's loophole may be another politician's tax increase. But according to two media outlets, Schwarzenegger told the audience at a Pleasant Hill, Calif., budget forum last Wednesday that the state should consider closing tax loopholes, and in his mind that includes the lack of a sales tax on professional services -- including legal services.
"We have to look at the way we are taxing," Schwarzenegger is reported as saying. "There's whole new economies that are developing, service-oriented economies."
Asked about the comments on Thursday, finance department spokesman H.D. Palmer said the governor was just explaining that there are a lot of deficit-eliminating ideas "out there."
"Basically, it was in the context of we ought to have everything on the table as we ought to be having discussions about them sooner rather than later," Palmer said. "But we're not carrying a bill in our back pocket, if that's what you're asking."
The state keeps tabs on how much money it loses from sales tax exemptions, or loopholes or whatever you'd like to call them. In 2007-08, for instance, state and local coffers could have raked in another $6 billion if California allowed sales taxes on food, according to the Department of Finance. The department doesn't project what a tax on legal services might generate. But a 2007 report by the treasurer's office estimated that the state could reap more than $10 billion from a tax on "construction and professional services."
Taxing legal services isn't a new idea. Jeffrey Bleich, president of the State Bar, noted that San Francisco considered -- and quickly dropped -- the notion of taxing professionals when he led the San Francisco Bar Association in 2003.
As for Schwarzenegger's trial balloon, "I get lots of complaints," Bleich said Friday, "but this hasn't been one of them."
How serious is Schwarzenegger? He told reporters that he hears lots of budget-balancing proposals "and I just throw it out there." But it's an interesting concept. He may be able to sell it to Democrats by promising more money for schools and other pet interests. And if he can leverage that new money into support for sweeping changes to California's budgeting practices, he may also draw some Republican backing. Giving Republicans a chance to crow about "taxing the lawyers" might not hurt either.
