Buffett’s Property-Tax Remarks Stir Debate

Two days after lending his considerable prestige to Arnold Schwarzenegger’s bid for governor, investor Warren Buffett sparked a political backlash Friday by suggesting that Californians pay too little in property taxes, because of Proposition 13.

Schwarzenegger immediately sought to distance himself from his high-profile economic advisor and defended the 1978 tax-slashing measure, which has become akin to holy writ, particularly among California homeowners.

Rivals -- Democrat and Republican alike -- seized on the comments to criticize Schwarzenegger and accuse him of ducking a serious debate on issues.

“I think it’s time for Arnold to come out from behind the curtain,” Republican gubernatorial hopeful Bill Simon Jr. said as he opened his campaign headquarters, 25 stories above downtown Sacramento. “I guess apparently he stands for higher taxes, based on what his chief economic advisor said today.”

The flap came as senior California Republicans acknowledged efforts to clear the GOP field on behalf of the movie star, in hopes of improving the party’s chances of ousting Democrat Gray Davis and seizing the governor’s office in the recall vote.

Rep. David Dreier, the San Dimas Republican who heads the California GOP House delegation, said that, at Schwarzenegger’s request, he had placed calls Aug. 8 to rival candidates Simon and Peter V. Ueberroth, encouraging the two Republicans to support the actor’s candidacy. Neither has assented.

“I’m not twisting anybody’s arms,” Dreier said Friday in an interview. “But I’ve made clear that, at the end of the campaign, I’m hopeful they’ll be behind Arnold. He’s made some great moves.”

Other Republicans, however, were less enthusiastic about Schwarzenegger’s candidacy after Buffett’s comments were published on the front page of the Wall Street Journal.

“There’s been quite a bit of buzz among conservatives. It was met with a collective ‘ugh,’ ” said Stephen Moore, a Washington activist whose group, the Club for Growth, has gained sway in Republican circles as it promotes its conservative economic agenda in campaigns across the country. “It was kind of our worst nightmare coming true.”

In the Journal interview, Buffett -- a Democrat and vocal critic of President Bush’s economic policies -- strongly suggested that California needs to raise its property tax rates to help fix the state’s fiscal mess.

In part because property taxes are capped, California relies on personal income taxes, which dropped precipitously in the recent recession.

Citing personal experience, the Omaha-based investor noted that he pays considerably more taxes on his house in Nebraska -- valued at roughly $500,000 -- than a $4-million second home he owns in Laguna Beach.

“You can draw certain conclusions from that,” he told the newspaper, saying the wide variance in tax assessments “in effect, makes no sense.” On Friday, Buffett declined to comment beyond his remarks to the Journal.

While Schwarzenegger remained out of public sight -- continuing a lie-low strategy that has persisted since his entry into the race last week -- his campaign strategists sought to shield him from Buffett’s comments.

“Arnold Schwarzenegger has supported Proposition 13 for 25 years,” said spokesman Rob Stutzman.

“Mr. Buffett is as qualified as anyone in the world to provide advice on how to reverse California’s economic and budget problems,” Stutzman added, but he said Schwarzenegger would not necessarily choose to follow that advice.

Still, the political reaction was swift.

“I could not disagree more,” Gov. Gray Davis said of Buffett’s comments during a morning stop at Hoover Elementary School in Los Angeles. “The people spoke, and all of us who have held office since then have honored the will of the electorate. Lord knows we have some things that cost a lot of money in this state. Our property taxes are not one of them, and no one is about to change this.”

Simon took up the criticism at a campaign appearance in Redding, before heading to Sacramento to christen his campaign headquarters.

“I respect him as an investor,” Simon said of Buffett. “But I don’t think he’s in touch with the people of California. If Mr. Schwarzenegger wants to raise taxes, let him come forward and say that. I pledge that I will not raise taxes. But clearly, Mr. Schwarzenegger has chosen to surround himself with people that want to raise taxes.”

As for the prospect of quitting the contest, Simon said, “I think honestly I’d be the type of candidate that people should coalesce around.”

The property-tax furor was the second in recent days in which Schwarzenegger has been criticized for positions associated with one of his political backers. Earlier this week, Democrats attacked the movie star for his association with former Republican Gov. Pete Wilson, the co-chairman of his campaign and a controversial figure in the Latino community for his support of Proposition 187, the anti-illegal-immigration initiative.

The twin controversies underscore the difficulty of Schwarzenegger’s political positioning, as he reaches out to Democrats while trying not to alienate his base of Republican voters.

“It turns out Riordan’s problem wasn’t just him,” said Bruce Cain, a UC Berkeley political expert, referring to former Los Angeles Mayor Richard Riordan, whose moderate candidacy collapsed last year in the GOP gubernatorial primary under similar strains.

“You have implacable conservatives that demand fidelity on certain issues -- like no tax increase, no reform of Proposition 13, no give on abortion -- and then you have Democratic voters with litmus tests too. You can’t have it both ways.”

Proposition 13 represents a particular peril, some analysts said.

Many economists believe that the measure should be modified to allow taxes on commercial property to rise while still protecting homeowners. In Sacramento, some Democrats pressed this year to change the property tax system accordingly. But, afraid of the backlash, few lawmakers publicly advocate raising taxes on homeowners, even on wealthy people who own the most expensive residences or on people who have second homes.

It is hard to overstate the significance -- politically and symbolically -- the ballot measure continues to hold in Californians’ popular imagination.

Apart from capping property tax increases at about 2% annually, it is seen as a “now-mythical revolt of ordinary taxpayers against a tax-and-spend liberal state government,” said Tim Hodson, head of the Center for California Studies at Cal State Sacramento.

Buffett’s remarks “reflect that you can be a financial genius and become one of the richest men in the world and still be ignorant of some of the basic rules of California politics,” he said.

Indeed, the billionaire’s fiscal advice fell flat in a random sample of residents in Orange County and the San Fernando Valley.

“I don’t know why this would be an issue in the governor’s race,” said Chuck Scheid, 76, a Huntington Beach homeowner for 40 years. “Anyone that talks about eliminating Prop. 13 is pretty much dead on arrival.”

Sharon Ashford, a writing instructor and Granada Hills mother of three, said much the same thing.

“The fact of the matter is that 99% of Californians are regular working-class people who struggle to buy their first home and struggle during the first years to keep up with the mortgage and taxes,” she said. “Raising property taxes is not the answer because it puts too much pressure on families.”

Norma Landau, a 70-year retired schoolteacher in Encino, agreed, though she suggested that Proposition 13 is not necessarily fair, given the different tax treatments given to homes, depending on when they were sold.

“There are some who pay too much and others who pay ... too little,” she said. But even so, “I don’t think changing property tax rates would make up the budget deficit.”

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Times staff writers Denise M. Bonilla, Miguel Bustillo, Matea Gold, Karima A. Haynes, Dan Morain and Tom Petruno contributed to this report.