Gov.'s staff exploring new taxes

Many fiscal analysts are skeptical. They say that squeezing multiple billions out of the lottery would require voters to sign off on changes to the state Constitution, something that could not occur until November. By then, the state could be in a cash crisis. And privatization of the lottery is opposed by gambling interests rich enough to fight it with a well-financed campaign.

The governor's anti-tax rhetoric, meanwhile, has softened considerably. He is saying publicly that he is open to looking at eliminating existing tax breaks, or "loopholes," that don't significantly boost the economy.

He says the state cannot balance the budget on cuts alone because the effect on services would be too severe. And he is warning that the deficit is growing so big that every option for balancing the budget must be considered.

Schwarzenegger's declaration that the deficit may be growing to insurmountable heights -- the $20-billion figure he threw out earlier this week seemed inflated to even the most pessimistic forecasters -- signaled to many in Sacramento that he was girding to endorse taxes. The rhetoric of his business allies is also starting to shift.

Loren Kaye, president of the California Foundation for Commerce and Education, a think tank affiliated with the California Chamber of Commerce, wrote recently in the Sacramento Bee that a temporary tax hike may be appropriate -- if the Legislature supports spending restraints that would keep the state from ever again spending more than it brings in.

Bill Hauck, president of the California Business Roundtable, said his group was also looking for a long-term solution.

"The magnitude of the problem is going to dictate the solution," he said. "I think my members' overall view is the state of California has got to get its fiscal house in order."

--

evan.halper@latimes.com

--

(BEGIN TEXT OF INFOBOX)

Governor on taxes

"I feel that the people of California have been punished enough. From the time they get up in the morning and flush the toilet, they are taxed. Then they go and get a coffee, they are taxed. They get into their car, they are taxed. They go to the gas station, they are taxed. They go for lunch and they are taxed and [it] goes on all day long, tax, tax, tax, tax, tax."

-- Aug. 20, 2003,

at a news conference

"I don't think we should raise taxes. We don't need to punish people for the shortcomings of Sacramento."

-- June 7, 2006,

at a campaign appearance