Few new tax proposals have dominated the recent political debate in Sacramento like calls for a new levy on each barrel of oil produced in California. Both sides say it's a no-brainer; not surprisingly, it's a little more complicated than that.
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Last month's mammoth budget deal was widely known to have included a relatively large tax increase to help erase a $40 billion deficit. Not so widely known, though, was that it also included a tax break for some of the nation's biggest businesses.

And depending on which side you talk to, that tax break was either an important stimulus to the California economy... or a big giveaway to the politically powerful.
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"Pay no attention to that man behind the curtain."

It's a great line from a great movie.

And in politics, it's used to convey the sleight of hand that's so common when it comes to fiery campaign rhetoric that occasionally doesn't fit with the nitty gritty of governing.

That tactic may very well be at the heart of Governor Schwarzenegger's latest Budget Armageddon Road Show, which touched down in Fresno on Friday and in Los Angeles this morning. Schwarzenegger certainly wants to make the point, and rightly so, that the impasse here in Sacramento is threatening dozens of important public works projects around the state. Not to mention the state's fiscal survival.

But both events seemed to force Schwarzenegger to borrow a page from the Wiz, by directing attention toward the impacts of the impasse... and away, somewhat, from the solutions to the impasse.

And yes, we're talking about the T word... taxes.... or, ummm, the more family friendly R word: revenues.

"They passed legislation with a whole bunch of high taxes, to punish you," said the governor on Friday, "as if they didn't do anything wrong, you did something wrong."

He was obviously referring to legislative Democrats and their non-Republican revenue proposal. But compare the above comment with one made today in Los Angeles by the governor:

"I'm interested in revenue increases, that's the bottom line."

Republicans have picked up on the apparent misalignment of the two statements. Balking at reports that Schwarzenegger met only with Democratic leaders on Sunday, Assembly GOP Leader Mike Villines said this in a written statement today: "We believe the Governor should instead keep his promise to the people of California and reject the Democrat tax increases."

The morale of this story: message-focused campaign events are sometimes a tough fit with with the complicated, and sometimes contradictory, world of budget negotiations.

And that leads to this question: if the governor and Democrats can, as some now believe, find a compromise on the issue of economic stimulus and spending cuts... how might the rhetoric change when it comes to the tax increase proposal?

As the two houses of the Legislature prepare to convene to debate, and supposedly approve, a new state budget... it's hard to avoid thinking about the concept of taxes, specifically because just about everyone's tax payments would go up under this budget. Sort of.

The details of the $104.3 billion general fund proposal are still trickling out of the Capitol, a reality in the era of deals that are begun in public but really nailed down behind closed doors.

A general overview can be heard in our reporting from this morning's edition of The California Report.

But what's only become clear this afternoon is another scheme in the deal, one to accelerate the state taxes that are withheld out of almost everyone's paycheck... not just those who are self-employed.

This little gem would mean a bigger chunk taken out of paychecks for the first part of 2009 -- 10%, according to staffers -- with a subsequent drop in withholding payments later on. For some folks, this might mean a bigger tax refund come April.

Even so, it's quite the plan. As one legislative staffer brilliantly put it this afternoon, "we're collecting your taxes early."

The effect, for now, is to make 2008-09 state revenues look larger. But what about next year, you say? No problem. The "larger withholding early/less withholding later" is permanent. In other words, the state essentially gets money early every year, thus pushing the ultimate day of reckoning far off beyond the horizon.

This is in addition to another provision that has estimated tax payments being made earlier than they're currently due... and all of it is part of what legislative leaders on Sunday called "accelerated revenues."

These kinds of maneuvers speak volumes about how desperate the state is for cash, and how equally desperate legislators were to avoid an actual tax increase.

More on the budget deal later, both here and on the air.

ST. PAUL -- And now back to our regularly scheduled programming.

The Republican National Convention is back with a full schedule as muggy, wet weather sinks in on the Twin Cities. California delegates have a full day planned. In fact, I'm not sure I can keep up with them; there's a "Bloody Mary Brunch" this morning on the shores of Lake Minnetonka, and the day goes all the way until a soiree that runs until 2:00 a.m. Wow.

My day began early, tagging along with Meg Whitman, former CEO of eBay and close confidant of Sen. John McCain. Whitman, as you might know, is the subject of an awful lot of buzz in California political circles; more on her coming up in tomorrow's reporting.

Meantime...

That Makes Two Against Taxes: The budget stalemate back in Sacramento may have kept some legislators and Governor Schwarzenegger away from the big party here in Minnesota, but it's certainly on the minds of the California Republicans who are here. And today, the only Republican holding statewide office other than the guv said he opposes Schwarzenegger's bid for a tax increase to help close the $15 billion budget gap.

Steve Poizner, the state's insurance commissioner and a man considering a 2010 gubernatorial race, said the sales tax increase put on the table by the current guv is a bad idea.

"I don't support a tax increase as part of the package," Poizner said in an interview this morning here at the delegation hotel. "It would depress the economy. Wrong move."

When pressed, Poizner expressed a view that sounds similar to those from legislative Republicans -- a solution that relies, in part, on more spending cuts and some kind of borrowing. "We simply can't impose new taxes on Californians right now." That being said, the insurance commissioner did endorse Schwarzenegger's intent to find a long-term solution to the state's budget woes.

You can hear his full comments below.

On Monday, former Governor Pete Wilson said essentially the same thing on the sales tax proposal. "I don't support it," he told reporters. "One of the starting points for [current lawmakers] might be to go back to what the spending was at the end of [19]98 and look at how it spiked way past growth in population and inflation. And then start to make some cuts."

Wilson's comments are below, beginning with my question on the governor's sales tax plan.

11:59 pm -- The convention day has ended, and so a few random tidbits to round out the day.

Palin Fan Strikes Back: Sentiment on the convention floor in favor of Gov. Sarah Palin is running strong, as evident by this delegate's self-made hat she wore Tuesday night (not a CA delegate). Most delegates I spoke to believe Palin's been getting a raw deal from the press, though some privately still worry that the veep vetting process was not all it could've been.

My Exclusive: Yes, I managed to snag some private time with the man from Arizona. Funny, though, I couldn't get him to comment on anything.

Sorry I Missed You. Love, Arnold: The state delegation and guests ended Tuesday night with a post-convention bash at the Nicollet Island Pavillion in Minneapolis. The party was festive with food and drink. And the conventioneers all were offered a gift on the way out, courtesy of the guv and the Motion Picture Association of America: free DVDs of various movies. Of course, there were the Schwarzenegger classics like Terminator 3, Twins, and Conan The Barbarian. There were also some newer flicks, like Transformers and Live Free or Die Hard. Some were even high definition DVDs... but with a hitch: they were "HD-DVD" format, which as you know, was phased out by Toshiba earlier this year. Rummage sale, anyone?

As always, more photos on our special KQED RNC Flickr page.

[see below for update]

BUDGET DAY 50 -- Welcome to the newest saga in the budget drama of 2008: will the budget impasse be resolved with borrowing big bucks earmarked by voters for other government services, and are legislative Republicans leading the charge?

In fairness, this isn't actually a new topic; rather, it's newly prominent... after Governor Schwarzenegger called out his fellow Republicans yesterday at the end of yet another unsuccessful budget meeting.

At issue: the possibility of borrowing a few billion dollars from money set aside for everything from local government (through 2004's Proposition 1A) and transporation (through 2002's Proposition 42 and 2006's Proposition 1A) to early childhood programs (through 1998's Proposition 10 tobacco tax) and even money for mental health programs (2004's Proposition 63).

While there's not enough money in these accounts to completely close the budget gap, it's believed that these bucks, plus spending cuts and... well, some good old-fashioned budget gimmicks... could probably get the state at, or near, closing the $15 billion deficit.

But the voter-approved initiatives require the money to be paid back sooner rather than later, sometimes with interest. In other words... it would be a one-time solution that would probably add to fiscal headaches in years to come.

Schwarzenegger's accusation yesterday that it's Republicans pushing this as a solution left the leaders of both GOP legislative caucuses angry.

But it's been mainly Republicans who have expressed public willingness to consider such a plan; Democrats have pretty consistently shot down such talk when it's surfaced the last few weeks.

One interview in particular with reporters that immediately stuck in the craw of local government folks and others (and I know, because a portion of it aired in a story of mine the next day and the phone started ringing just after our newscast) was given by Senate GOP Leader Dave Cogdill two weeks ago today.

Cogdill didn't necessarily say that he wanted to borrow the money, but acknowledged such action as a way out of the jam.

His unedited comments, first to the idea of a tax hike, and then to the issue of borrowing, can be heard below.

In a written statement released yesterday after the governor's public dressing down of Republicans, Cogdill tried to make the point that such borrowing would only happen if Democrats refused to cede any ground off their program priorities.

"If Democrats want to increase spending," Cogdill's statement reads, "they are going to have to either raise taxes or borrow money."

In other words, is it Democrats demanding certain spending... or Republicans rejecting certain revenues? Such ponderances lead to the same kind of brain freeze as a good milkshake.

One thing seems certain: should such borrowing be the ultimate solution to this standoff, it will probably be impossible to ever figure out just whose fingerprints are on it.

[update 2:38pm Schwarzenegger, in a news conference laying out a new budget proposal, seemed to close the door on the borrowing plan, but only after a little prodding from my follow-up question. His final comments on the suggestion: "It is not a wise idea, and I will not do that, no."]

BUDGET DAY PLUS 36 -- He knew he would get the question.

At a late afternoon news conference to discuss the budget, Governor Schwarzenegger attemped to explain his apparent change of heart on whether he'd ever support a tax increase. His answer was complicated... which reflects the reality of the budget mess... even though his earlier statements on the issue were crystal clear.

Foremost on that list of earlier statements: a Schwarzenegger campaign event on August 16, 2006 in Sacramento, where flanked by anti-tax crusaders, the governor removed all earlier doubt about whether he would ever jump on board the Tax Train, as had his Democratic opponent:

Here was his answer last month about the issue at an event in Sacramento:

And here's the governor today, in answering the question I posed to him, suggesting the sales tax increase he reportedly placed on the table was part of a "brainstorming" session:

"Tough decisions have to be made," Schwarzenegger went on to say, also calling for compromises on all sides.

That would seem to be a reasonable request... which is why it's stll so baffling that the governor, up in the polls and the odds-on favorite to beat Democrat Phil Angelides, would have made such an ironclad statement in 2006.

Even someone like me who blogs on news tidbits is amazed at the speed these days with which chatter by various sources can turn into a full blown news story.

Such was the case this afternoon, with two news organizations reporting a possible 1% increase in the state sales tax to close the budget gap, an increase reportedly placed on the negotiating table on Sunday by Governor Schwarzenegger.

Both stories rely on unnamed legislative sources, and state that Schwarzenegger is demanding reform of the budget system in exchange.

Both stories come after the proposal was widely buzzed about in emails, phone calls, and chats all day long.

The governor's office won't comment on the reports, other than to say Schwarzenegger's demand for a budget reform proposal is a big deal.

Setting aside the veracity of the proposal, it's worth noting the many obstacles in the way of a temporary sales tax increase... not the least of which are the no-new-taxes pledge of legislative Republicans, or for that matter, the same long-standing stance of the governor himself.

A 1% sales tax hike first surfaced in May the governor's revised budget, when he said it was a backup plan if voters failed to approve a lottery bond proposal in November to help close the budget gap. At the time, the Legislative Analyst's Office said the proposal would bring in $6 billion in a full fiscal year.

But given that legislative Democrats have pegged the need for new revenues at about $8 billion, that means you still need more cash.

Futhermore, budget watchers say it's important to remember that a sales tax increase doesn't mean that all of that moolah will go to the state's general needs. Nope... thanks to the school funding guarantee, Proposition 98, a portion of those new tax revenues would go directly to education.

And that's not all. If you know nothing at all about Prop 98 (and hey, who does?), know that Prop 98 funding each year is driven by a formula based on the previous year's funding level.

So what happens when the temporary sales tax hike expires? $6 billion in revenues go away... education spending remains at its higher level based on those one-time tax revenues... and now there are new pressures on finding enough cash for all other state government programs. And this scenario doesn't even deal with criticisms that a sales tax increase would most hurt those who can least afford it.

In other words, it's a lot more complicated... and maybe more risky... than it seems.

BUDGET DAY PLUS 17 -- A good example of just how heated the budget impasse is quickly getting can be found today in a dustup over whether legislators are mulling the option of internal borrowing to help erase the $15 billion shortfall.

The borrowing talk has been rampant for weeks in the Capitol, and has been pushed by some Republicans as a better plan than the Democratic call for raising taxes. The most talked-about scenarios involve borrowing money sitting in the accounts of transportation (through 2002's Proposition 42), early childhood development (1998's Proposition 10) and mental health programs (2004's Proposition 63). Some have also suggested exercising the borrowing option from the local government funding measure, 2004's Proposition 1A.

None of this would be easy. The various groups who support such programs will... and already are... howling; some of the money, while technically in the bank, may have already been committed for 2008; and the repayment of said loans only pushes a huge fiscal mess into another year.

The man with the biggest megaphone put the issue out there in today's edition of the Los Angeles Times. Governor Schwarzenegger was quoted as saying it's "not a good idea," though stopping short of refusing to go along with such a plan.

But Democrats, believing that the Times' story implicated them as pitching this plan, fired off angry press releases. "Today’s Los Angeles Times story about state budget negotiations is inaccurate and misleading," said Senate President pro Tem Don Perata in a written statement. Both he and Assembly Democrats emphasized that borrowing isn't a part of their plan -- fair enough, but like Schwarzenegger they, too, stopped short of refusing to vote for such a plan if Republicans hold the line on their no-tax pledge.

If Democrats are willing to consider such a GOP proposal, today's fracas may have set back such talk. But everyone also knows that $15 billion is not an easy gap to close... and in the end, something... spending cuts, taxes, or cuts... will have to give.

BUDGET DAY PLUS 9-- With legislative leaders resuming their private negotiations today over a new state spending plan, it seems worth noting what is... and isn't... negotiable, at least according to their public pronouncements.

Much ado was made yesterday of whether Democrats were drawing the idiomatic "line in the sand" over further cuts in state spending. But it doesn't take a trip out to the beach (which might be nice, considering the Sacramento heat wave continues) to know that sand drawings have a way of... disappearing.

With that in mind, here's a look at -- as of now-- what the political leaders have said they are, or aren't, willing to do.

TAXES: Republicans remain adamant that they're unwilling to accept tax increases as part of a budget deal. Even so, I'm still trying to decipher the words of Assembly GOP Leader Mike Villines in an interview almost a month ago after an anti-tax event on the Capitol steps: "There are going to have to be some things that we look at, potentially with the business community, to help us get out of this, and say, 'You know, if we give you some reforms, can you, you know, help us with some different kind of revenues?"

Of course, one could be persuaded that this isn't really a big deal, because "revenues" may not necessarily be "tax increases."

But the award for mixed messaging on taxes... thus far... must surely go to Governor Schwarzenegger, when asked yesterday whether he was rejecting Democratic calls for increasing taxes:

BORROWING, INTERNAL STYLE: Borrowing is one way of getting those elusive "revenues" without actually raising taxes. While there are pretty strong restrictions now in place on external, Wall Street borrowing (in the wake of Propositions 57 and 58)... there's always the chance that money set aside for other programs and projects could be dipped into to solve the problem. Some Republicans have suggested legislators might want to look at money collected under voter initiatives on tobacco taxes, transportation funding, and even mental health programs. But Senate President pro Tem Don Perata seemed to squelch such talk yesterday, saying it "goes against the promise" made to voters who support those programs.

SPENDING CUTS: This one seems just as hard for Democrats to swallow as a tax hike would be for Republicans. "We can't cut anymore," said Assembly Speaker Karen Bass. "Line in the sand? Yeah."

It will be interesting to see what lines stand the test of time once the budget is finally enacted, and what ones disappear once push comes to shove. As most Capitol watchers know, much longer standoffs than this one have become the norm when it comes to the budget.