Escaping the State Budget Impasse : No New Taxes, New Revenues, Some More Cuts

The political heel-digging is predictably theatrical in this election year. The governor, speaking for state Republicans, vows no new taxes--read my lips; the Democrats, led by the Speaker, cry that the state budget should not be balanced on the backs of the poor peoplewho would be hit hardest by the governor’s proposed cuts of $1.688 billion--button your own lips, GOP.

Sacramento is close to political deadlock over the budget crisis and when the clock strikes midnight on June 30, the state of California needs to have produced a balanced budget.

If politics is the art of compromise, then Sacramento now needs to show considerable artistry. But why should a budget deal be so difficult to achieve? Politicians are often skilled at accommodating divergent political needs. So careful analysis of each side’s political requirements should yield clues to the way out.

What the Democrats Need: Gov. Deukmejian has proposed a raft of cuts that Democrats say would slice real bone out of essential services for the needy. Programs that feed children and provide health care and work to reduce child abuse should not strike many voters--even anti-tax voters--as Mercedes-Benz frills. And these programs serve Democratic constituencies. The Democratic political challenge is to appear as gallant protectors of the weak.

Even so, Democrats aren’t being any more realistic than Republicans: Some cuts will need to be made. Which ones and how much cutting over all? If legislative Democrats cannot or will not trim somewhere, they ought to be willing to agree on the aggregate size of the pare-down and hand over the knife to the Happy Cutter himself, who leaves the governor’s chair at year’s end. And Deukmejian could reduce the bloodshed by agreeing to accept a lower budget reserve, perhaps even as much as $1 billion less. That could lower the budget hurdle closer to $2 billion than $3 billion--a still onerous but not impossible political lift.

What the Republicans Need: No new taxes, that’s the capital cry. Forget any progressive levy on the state’s upper-income earners. It’s a new tax and the governor says he’ll have none of it. And, of course, he has a point: On June 5 California voters approved a whole boatload of billion-dollar bond issues. Government spending has to be watched like a hawk and if a grumpy governor is the answer, maybe that’s not such a bad thing.

Still, the shortfall is at least $2 billion, and you still say no new taxes? OK, then how about an old one? Suspend, as the state legislative analyst’s office suggests, state tax indexing for inflation for one year, to get us over this hump. A suspension of indexing (a relatively recent feature of the state tax code) would cost few taxpayers any more discomfort at tax time than, say, $30 or $40 dollars (figuring in federal deductibility)--and it adds $1 billion to state coffers. And no way is it a new tax.

The Compromise: So there you have it. A mix of additional revenue and additional cuts--perhaps in categories where cutting would not require statutory action or trigger appeals for court-ordered delays.

In Sacramento a governor continues his campaign against taxes while a harried legislative conference committee seeks a real-world budget bill. Our suggestion: The committee should put everything on the table, look everywhere in the $56-billion budget for cuts; and the governor should accept indexing-suspension, but no new taxes. Then after declaring a profoundly satisfying moral victory, Deukmejian can step down with a happily balanced budget.