Can California survive ‘no new taxes’?

Today’s question: Will Arnold Schwarzenegger be able to fulfill his promise to never raise taxes? Previously, Boyarsky and Bradley debated whether California is better off under Schwarzenegger.

Fix the entire tax structure
Point: Bill Boyarsky

As was often the case when I worked at The Times, there was no way to answer the editor’s question. Gov. Arnold Schwarzenegger has been all over the lot when it comes to taxes, pledging not to raise them, offering complex and odd revenue “enhancements” and, most recently, according to legislative sources, proposing a temporary one-cent sales tax increase to close the budget gap.

So the pledge has been broken, at least by intent.

The question asked by the editor today should have been, “How should Schwarzenegger and the legislators redo a tax structure that is too inelastic to support the always-changing needs of a dynamic state?”

California’s revenue stream relies too heavily on the personal income tax. This is an unsteady source, subject to sharp declines when the economy slumps, as it is doing now. As Schwarzenegger put it, “We have a tax system that does not reflect the 21st century California.”

I have been writing about taxes since I first covered Sacramento more than 40 years ago, and have witnessed many attempts to revise and improve the tax structure. Each effort has failed, a victim of the incredible mixture of economic and social interests that dominate policymaking in the Capitol.

In my early years, I spent a huge amount of time covering efforts to reform or limit property taxes, which were increasing fast and provoking great anger from homeowners around the state. Despite this tide of protests, neither legislators nor governors could agree on a solution. The result was Proposition 13, which limited property taxes and shifted much of the obligation to finance schools and other traditionally locally funded programs to the state.

Everything that has followed has been a reaction to that taxpayer revolt. The result has been a series of piecemeal fixes that still leaves state government a prisoner of ups and downs in the economy. These fixes have been the product of negotiation and deal-making, usually taking place in the final days of a legislative session. Secrecy in legislating has become the norm in Sacramento, and Schwarzenegger, who was elected in a recall by promising change, has not been able to change that.

The solution should be found in the Capitol, in the offices of the governor and the legislators. I know that term limits have crippled the process. I understand that gerrymandered districts have resulted in the election of lawmakers who are the prisoners of the far left or right of their respective political parties.

A first step would be to make the budgeting process more open. Decisions that resulted in the Legislature’s poor budget were made behind closed doors by a few leaders, most of whom are relatively inexperienced. We should return to the days of full and open legislative hearings on the budget and taxes, with experts and others participating and lawmakers advised by experienced and nonpartisan staff members.

There are a lot of smart people available to help. With the process open and discussion encouraged, Sacramento may figure out a way to improve a tax structure that was ailing long before Proposition 13.

Bill Boyarsky, a writer for Truthdig and LA Observed, is the author of “Big Daddy: Jesse Unruh and the Art of Power Politics.” He was a political reporter, columnist and editor for The Times.

No new taxes? No way
Point: William Bradley

Arnold Schwarzenegger clearly cannot keep to a no-new-taxes pledge. The logic of the situation won’t allow it -- unless he wants to follow along with the “get-out-of-town” budget cobbled together by Republican and Democratic legislative leaders, which kicks the can farther down the road by taking no-interest loans out of Californians’ pockets.

Incidentally, as I reported this morning on New West Notes, Schwarzenegger has reserved TV time tonight for a statewide address on the chronic budget crisis. I fully expect him to become the first governor in history to veto a California state budget.

Let’s look at the history of Schwarzenegger on the tax issue.

It’s frequently presumed, and certainly pushed along by the far right, that he made a no-new-taxes pledge when he won his first landslide election as governor of California in the 2003 recall election. Although he gave off such atmospherics, he didn’t say he wouldn’t raise taxes. He said he would probably have to raise taxes in the event of a big disaster. How big a disaster? What kind of disaster?

He wouldn’t have had to go through such contortions if his friend Warren Buffett, not long after being named Schwarzenegger’s economic advisor and musing to a Wall Street Journal writer about the lower tax on his beach house in Laguna Beach than on his principal home in Omaha, talked about the need to raise California’s property taxes. That prompted Schwarzenegger, on stage after a campaign “economic summit” at an L.A. airport hotel with Buffett and former U.S. Secretary of State George Shultz, to warn Buffett that he would have to do “500 sit-ups” if he said that again.

Proposition 13, of course, is a longtime “third rail” in California politics. Buffett’s musings came at a particularly inopportune moment for Schwarzenegger, running as a Republican yet already suspect on the right for his social and environmental views.

As governor in 2004, Schwarzenegger said publicly at a Sacramento news conference that he might have to raise taxes. But he did not make that move. Running for reelection in 2006, he did make a no-new-taxes pledge. He also criticized his Democratic opponent, then-Treasurer Phil Angelides, as an inveterate tax-raiser for, among other things, calling for mandated employer healthcare coverage -- which in 2007, ironically, was a cornerstone of Schwarzenegger’s own universal healthcare proposal. You can’t call the guy inflexible.

Now he has embraced a temporary tax increase -- in the form of a one-cent sales tax hike (along with some tax loophole closures) -- to balance the budget and preserve a semblance of the social safety net.

On economic issues, Schwarzenegger, something of a business tycoon himself, is a pro-business moderate, a pragmatist. More taxes is never the preferred option. He tried his most-preferred path, growing the economy as the way to produce more revenues, as a means of eliminating the structural budget deficit he inherited (and exacerbated with the very popular car tax cut, a lesser but significant reason for the Gray Davis recall). It hasn’t worked. Of course, growing government at the same time is part of the problem.

But Schwarzenegger wants government to do things in a growing state; so do most Californians. Still, perhaps government should not have grown as much as it has.

But remember the stubborn two oppositional factions that dominate the two parties under that lovely Capitol dome. The anti-government faction dominates legislative Republicans, always pushing to be the party of no, except when it comes to pork and business tax breaks. The ultra-government faction dominates legislative Democrats, always pushing to be the party of yes.

Here’s the reality check: Even the conservative Republicans who drove this year’s record budget impasse couldn’t come up, when challenged, with the program cuts they said they wanted to balance the budget -- which is why we have this budget monstrosity which, no matter how you slice it, still relies on more borrowing.

The logic of the situation is clear: more revenues, more efficiencies, more reform.

Bill Bradley, a former senior advisor in presidential and gubernatorial campaigns, publishes NewWestNotes.com. He can be reached at williambradley@earthlink.net.