Tax Cuts: Wilson Goes With Flow : In unsettled times, his 5% proposal may be premature

Gov. Pete Wilson seems to have caught the tax-cut fever that’s sweeping the nation. On the eve of his second term, he said Thursday he will recommend that the Legislature cut income taxes by 5% or more. If the Legislature does not, Wilson said, he might put the idea on the ballot. Is there a doctor in the house to calm the governor’s delirium over his admittedly impressive political comeback?

Earlier Thursday, in response to a question from a radio talk show host, Wilson gave the first indication that he endorsed the tax-cut recommendation of a blue-ribbon commission he created. But the governor’s eager pronouncement raises some questions that he should address in his State of the State address on Monday. A tax cut need not be ruled out, but Wilson should first justify such an action on the basis of sound fiscal policy.

Of course, for political reasons he might be anxious to reverse the record $1-billion tax increase he and the Legislature enacted in 1991 in seeking to resolve a messy budget shortfall that occurred the first year he was in office. That tax hike could haunt any national political aspirations the governor might have.

But isn’t it premature to call for a tax cutback? A California economic recovery may indeed be under way, but the state is facing about $3 billion in debt run up during the long recession. Remember also that many past state projections on revenues have been too optimistic. Sacramento will not even begin working on a new budget until May. And after three years of recession and horrific state budget cuts, might not any additional revenues be allocated to hard-hit higher education and local governments? Sacramento balanced much of its budget on the backs of counties, which lost property tax revenues to the state. Don’t forget that one reason for Orange County’s recent bankruptcy is that county officials, hard-pressed to meet expenses, started making risky investments to get big returns.

Earlier, Wilson and Sacramento legislators said they needed time to carefully review the recommendations issued last month by the governor’s Task Force on California Tax Reform and Reduction. The panel, chaired by George P. Shultz, secretary of state under President Ronald Reagan, urged the governor and the Legislature to enact an across-the-board 15% cut in personal and corporate income taxes to further boost California’s recovering economy. The cuts, amounting to $9 billion, would be implemented in 5% increments over three years, starting with 1995 tax returns.

The task force said that California could afford such a move because, based on estimates for the next five years, the state would receive at least $37.4 billion in revenues over current levels. That total, according to the panel, would be enough to allow a tax cut, pay off the debt and balance the budget. Perhaps, but the situation still demands independent review and analysis.

As for Wilson, astute timing has always been one of his political strengths. He has shown he can ride a political theme as deftly as a masterful surfer rides a wave. But until the state has a better grasp on its fiscal situation, he ought to be cautious about riding any tax-cut movement.