Schwarzenegger: $4.4B in tax hikes to end deficit – Yahoo! News.

SACRAMENTO, Calif. â?? Gov. Arnold Schwarzenegger on Thursday proposed $4.4 billion in new taxes and a similar amount in spending cuts to deal with California’s worsening fiscal crisis, saying, “We must stop the bleeding.”

Much of the new revenue would come from a 1.5-percentage-point increase in the sales tax; the Republican governor described the hike as temporary but did not say how long it would last.

“We have a dramatic situation here and it takes dramatic solutions … and immediate action,” Schwarzenegger said as he called the Legislature back into session to deal with the budget shortfall.

The governor said $4.5 billion in cuts will be necessary across all state programs, including education, social services, health care and prisons.

If this goes through, sales taxes in San Jose will be 9.75% (8.25% currently + 1.5%). That might be a bit too much to handle for a lot of people, especially when one of the issues is lower consumption. This also just gives people more incentive to avoid taxes by purchasing through mail order. I think the state government will eventually need to ask for broad pay cuts – yikes – in addition to cuts to services and lay offs.