Big Government, Schwarzenegger-Style

Recession will push taxes higher and services lower.

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We might want to wave the caution flag on the triumphal return of Big Government. As least on the state level, the recession might merely bring about high-tax, low-service government. Check out how things are going into Arnold's California ( via the Mercury News):

Gov. Arnold Schwarzenegger's staff Wednesday released his most detailed plan yet to tackle the state's staggering budget deficit, calling for deep cuts to state services, hefty tax increases and a large new round of borrowing to close a projected $41.6 billion shortfall through mid-2010.

While little of the proposal was new, it included some striking elements, such as cutting billions of dollars from public school funding and slashing the deduction state taxpayers can claim for their dependents. The plan also arrived a day after the state controller warned tax refunds might have to be paid with IOUs in the spring because California is so short of cash.

The plan, the governor's third in as many months, has little chance of being adopted and serves more as a statement of his fiscal priorities. It would cut $5 billion from funding for public schools over the next 18 months while imposing a temporary 1.5-cent sales tax increase. Spending on welfare, health care for the poor and aid for the aged, blind and disabled would be cut dramatically.

Despite forswearing more borrowing, Schwarzenegger proposes tapping Wall Street for a nearly $5 billion loan and pledging future lottery proceeds in exchange for an additional $5 billion. But the Wall Street loan may be iffy at best, given the frozen national credit markets and the state's shaky finances, while the lottery plan would have to be approved by voters.