Wilson Raises the Stakes in Gamble on Tax-Cut Plan

With his latest ultimatum of a tax cut, Gov. Pete Wilson has decided to gamble a significant part of his political legacy on a personal hunch that Democrats are in disarray and voters are on his side.

If he prevails in Sacramento’s increasingly hostile budget battle, Wilson could claim credit for a historic redesign of the state’s welfare system and a politically therapeutic tax cut that might ease Republican complaints about the time he raised them.

But the gamble is that Democrats, who are still training a new Assembly leadership and many freshman, will swallow some of their disagreements rather than shut down the Capitol and take the fight to the court of public opinion.

Wilson still believes he would win. But such messy battles are usually costly for all of those involved, and now Wilson is raising the stakes for himself.

“They have this implacable hostility toward tax relief,” Wilson said after meeting with Democratic leaders early Thursday evening. “They just don’t want to give middle-income taxpayers any relief. . . . They want the good times to continue so they can just spend everything that comes in.”

Wilson’s latest proposal represents a shift in his argument for cutting taxes.

In the past two years, the governor argued for a tax cut by waving a report from Reagan-era supply-side economists who said it was essential to maintain the state’s fiscal health.

“Death and taxes may be inevitable, but not taxes as high as California’s,” Wilson said in his 1995 State of the State speech. “What is inevitable is that California taxes will be the death to California jobs unless we lower them.”

But as it was for Reagan, that argument proved a difficult case to make--especially when the economy was growing substantially.

Now, Wilson contends that it is only fair to pass a tax cut so Californians can share in the financial windfall that has come to state government because of a booming economy.

“With this state’s economy surpassing all expectations, the time has come both to provide tax relief for those Californians who surrender too much of their paychecks to Sacramento and to provide assurance that state government will not automatically, gluttonously spend all the growing bonanza in tax revenues simply because the money is there,” Wilson said when he unveiled his latest plan on Wednesday.

Wilson also changed his tax plan significantly.

Previously he had sought a 15% cut in both personal and corporate income tax rates that would be phased in over three years. One complaint about that plan, however, was that the biggest beneficiaries would be the wealthy.

Now, Wilson has targeted middle-income taxpayers. The biggest beneficiaries in his latest plan--eligible for a 10% reduction--would be a family of four earning between $60,000 and $80,000 a year.

That slice of the population is also one of the biggest groups of swing voters in almost any major election. They are not the average taxpayer, since California’s median household salary is about $42,000 per year. This group is closer to the soccer mom category that was so heavily targeted by the presidential contenders last year.

As a result, Wilson’s tax-cut proposal has fueled speculation that he has just taken the first major step toward the White House bid in 2000 that he promised to launch when he withdrew from the last contest in 1995.

If Wilson does run, there are high stakes attached to this push for a tax cut. In his last race, Wilson was criticized for signing a $2.3-billion tax increase in 1991 when the state was in a recession and facing a $14-billion deficit.

Wilson promised those critics during his last presidential campaign that he would force a tax cut through the Legislature or take it to voters in an initiative. He did neither.

Now, if he wants to campaign again in New Hampshire--scene each election year of the nation’s first primary battle--Republican strategists say Wilson could face a hostile GOP if he does not take advantage of a budget surplus to pass a tax cut.

Wilson aides dismissed the presidential speculation prompted by the governor’s tax-cut plan. But in their view, it should cancel out those who criticized his 1991 tax increase.

“This is saying that when times were tough, we made the tough decisions,” said Wilson spokesman Sean Walsh. “And when times are good, we need the investment to keep them good.”

As he needles Democrats on taxes, Wilson’s posture toward the Legislature has been similarly defiant on welfare. He is convinced that the public is more supportive of the demanding and punitive elements of his plan than they are of a Democratic proposal he recently vetoed.

It is also an issue with high stakes for his legacy since he has made it a top priority every year since he was elected in 1990 and because it is certainly the most far-reaching overhaul of his tenure.

In the upcoming showdown, Wilson is acting like the poker player who is holding a straight flush. He is taunting Democrats to pick a fight against tax cuts and in favor of a more lenient welfare plan. But he is also hoping that they will back down first.

Pollster Mervin Field warned in an interview that public opinion is volatile these days and the governor cannot be certain of being a winner from a head-on confrontation.

He said his recent surveys have found support for sending welfare recipients to work but also compassion for their hardship. On taxes, he said many voters consider education a higher priority and many don’t believe they’ll see the savings anyway.

“Actually, the inattentiveness of the public to these issues right now is really at an all time high,” Field said. “It may be that Wilson has an edge or it may be that he doesn’t have an edge. But these are obscure, intramural battles that are going on. It really is not going to mean much until the public is paying attention.”