Reagan Economic Guru Lambastes Gas Tax Hike

Declaring that “the power to tax is the power to destroy,” former Reagan Administration economic guru Arthur B. Laffer on Monday blasted a proposed state gas tax increase on the June ballot, saying it would usher in an era of unemployment problems, economic stagnation and declining property values in California.

Speaking during an hourlong press conference at the Irvine Holiday Inn, Laffer acknowledged that California’s burgeoning traffic problems need to be tackled but said that a good start could be made if lawmakers would simply shift more state budget money from other programs to transportation.

“This is a substantial tax increase and would lead to a reversal of the prosperity we have enjoyed in California,” Laffer said, adding that the tax hike, Proposition 111, and a companion measure, Proposition 108, would hit “poor people, minorities and the disenfranchised” particularly hard because many drive older, gas-guzzling cars.

The measures, which have been endorsed by the Orange County Transportation Commission and several other county agencies, would combine to ultimately raise about $18 billion and spark a wave of highway and mass-transit construction that supporters believe eventually would ease the state’s crippling congestion and rehabilitate many of its crumbling highways. Among the projects in Orange County that would benefit from the tax is the planned expansion of the Santa Ana Freeway from its current six lanes to a dozen.

Laffer, however, said states that have raised taxes have suffered increases in unemployment and other problems. He argued that the past decade of economic prosperity in California was sparked by Proposition 13, the benchmark measure approved by state voters in 1978, and other subsequent tax-cutting proposals.

He also suggested that government do a better job of tapping developers as a prime source for road money, saying there is “no reason why we should subsidize migration” of newcomers into the state who boost the need for new roads and wider freeways.

The economist, a chief architect of the revolutionary tax-cutting provisions of the Reagan Administration, said he was “disappointed” that Gov. George Deukmejian has taken a leading role in support of the gas tax.

He argued that the only fair tax would be one hitting motorists who use the roads during peak congestion hours. The technology currently exists to outfit cars with computer chips that could be scanned to charge a fee to motorists using a highway during crowded times of the day.

Laffer’s arguments drew a heated rebuke from supporters of the gas tax hike, which would add 5 cents a gallon as of Aug. 1 and an additional penny each year until 1995. They believe that crumbling roads and growing traffic congestion--not extra taxes--threaten to undermine the state’s economy if something isn’t done.

Several Proposition 111 backers attended Laffer’s press conference. Afterward, they held an impromptu meeting of their own with reporters, saying Laffer was twisting economic theory to suit his arguments while ignoring the realities of a state budget stretched thin.

Jerry Yudelson, a spokesman for the Orange County Clean Air Coalition and a supporter of the gas tax, argued that California’s economic prosperity has not been fueled by the tax revolution sparked by Proposition 13 but rather by a federal “defense spending binge” that bolstered the state’s economy during the 1980s. Yudelson is a candidate for the Democratic nomination for the 72nd Assembly District.

He also said there “is no more give” in the state budget to divert funds to transportation. “We’re going to lose our economic prosperity,” Yudelson said, if transportation improvements are not made soon. “Think what that will do to property values as people bail out of the state,” he said.

Another supporter of the measures, Reed Royalty of the Orange County Taxpayers Assn., said the gas tax is “user-sensitive” because motorists who sit in traffic and burn gas will have to pay more than those who travel at hours when the freeways are flowing more freely.