CALIFORNIA COMMENTARY : Wrong Tax Cut at the Wrong Time : Most of Wilson’s proposal would benefit the top 10% of taxpayers and equal higher fees and fewer services for the rest.

Does California have a surplus in revenues, so that a tax cut is in order? That’s what Gov. Pete Wilson maintains as he proposes to cut $6 billion to $7 billion in income and corporate taxes over the next three years. By 1999, when the cut is fully phased in, state revenues would be at least $3 billion to $4 billion less annually.

The “surplus” is in part a result of short-term recovery from a deep and long recession, at a rapid rate that is not likely to be sustained. Should those additional dollars go back into taxpayers’ pockets? Ignore for the moment that most of the money in the tax cut goes to the highest income taxpayers and the largest companies. A major part of the “surplus” stems from the fact that important services took deep cuts during the recession.

State budget actions taken during the recession remove about $2.2 billion a year from the coffers of cities and counties to balance the state budget. Los Angeles County, for example, loses more than $500 million per year from the revenue shift, deepening an ongoing financial crisis. Just restoring the revenues taken from local government would use up most of the proposed tax cut. Any “extra” state revenue comes from the backs of local government.

The state has cut the income support of our poorest citizens. If voters are not sympathetic to welfare recipients, who have seen precipitous declines in income, they are to the disabled: Completely disabled individuals receive $80 per month less from the state now than they did in 1990. In most value systems, restoring $80 per month to the disabled comes before cutting $80 per month in taxes for the $150,000 taxpayer.

Student fees at colleges and universities have increased by nearly 70% at the University of California and Cal State University and more than 225% at community colleges, while funding for higher education has declined, even as demand is increasing. For California’s struggling middle class, higher fees are a burden and discouragement, and access to classes and programs is difficult. Has the recession created unfunded needs and higher costs in higher education? Unquestionably. Will those needs be addressed by a tax cut? They will only be exacerbated.

While some small additional program revenues are proposed for schools, they are the big loser from the tax cut. Schools have fallen more than $1 billion below their promised maintenance level. As revenues grow, they should receive that $1 billion “maintenance factor” over the next few years. Cut off the growth of revenues, as the tax cut would do, and the result is simple: no growing revenues for schools and continuation of their very low funding level (41st in the nation).

One of the looming defects in the state budget is the ability to pay for the prison population, which the “three strikes” law is certain to increase. The Rand Corp. has estimated that implementing three strikes will severely cut into other state programs. Perhaps this gloomy prediction can be avoided if revenues truly grow rapidly. But cutting off revenue growth through a tax cut is a sure way to put prison funding at odds with other programs.

Under virtually any federal balanced budget scenario, California is due to lose billions of dollars in federal revenue over the next few years. Congress says that the states should turn to their own resources and economies to respond to these challenges. Instead, the Wilson tax cut would weaken California’s ability to deal with the unfunded liabilities that devolution of program responsibilities will bring to the state.

And what will the tax cut mean to average Californians, aside from higher fees and failure to improve services? Less than $100 per year for the family earning $40,000; less than $200 for the family earning $60,000. Almost 30% of the benefits go to the top 1% of taxpayers, and roughly 60% will go to the top 10%. Counting last year’s tax cut, the richest 1% of taxpayers get a 28% cut or roughly $10,000 per year. Large multinational corporations will also see a significant cut. And the biggest beneficiary will be the federal government, which will gain about 25% of the amount cut from the decline in deductible state taxes.

The equation is not very complex: tax cuts for the well-off and powerful at the continued expense of vital services. That’s the Newt Gingrich program, brought to California. We used to have a better vision of our future.