Schwarzenegger's quest for revenues taxes consumers and their patience

Other states tax takeout cappuccino, movie tickets and personal trainer sessions. Why not California?

A woman looking for the cheapest jolt of caffeine on the menu at an Alhambra Starbucks offered one response: She's already broke.

"There must be some other way," said Gwen Angert, 38, a student at the California School of Professional Psychology who says she and her classmates have up to $80,000 in education debt. "We're struggling to make ends meet."

Her friend Chris Fyfe, 25, chimed in: "I don't know if people will continue buying things if prices go up."

News that Gov. Arnold Schwarzenegger's administration is exploring potential tax hikes on personal services, some prepared foods and other items to help close a budget gap was not warmly received by consumers and business owners Friday.

A coffee shop owner in Koreatown fretted that such a tax could help push her out of business. A personal trainer in West L.A. wondered if it would make customers think twice about coming to work out. Movie patrons at the Grove complained that tickets cost too much already.

But one group -- economists -- is fond of the idea. They have long urged the state to tax services, saying there is little rationale to California's current tax system, a crazy-quilt of levies that they say encourages consumers to spend money in some places and not others.

"There is no reason to exclude services from sales tax," said Alan Auerbach, a professor of economics at UC Berkeley. "It discourages people from buying goods in favor of services."

Auerbach, like other economists, says state officials should tinker with the tax code to bring fairness to it, not just to squeeze more money out of it. He suggested they might even cut a tax when they impose new ones -- something that is not in the cards in cash-strapped Sacramento.

The ideas being studied by the administration are geared toward closing a budget gap that the governor says has now grown as large as $20 billion -- while the economy goes south and tax receipts dwindle. The hunt for potential tax hikes is occurring even as the governor has continued to say publicly that he will resist them and his staff denied Friday that they were considering new taxes.

Schwarzenegger has to put out a revised budget plan May 14. Lobbyists and state officials have been told by his staff that if the deficit has grown considerably by then, the governor is prepared to consider a tax increase. The administration appears to be targeting items that now escape taxation.