A Tax Cut in Sheep’s Clothing

When it comes to a free ride, count the Orange County supervisors in. Well, four out of five of them.

The supervisors heeded Gov. Pete Wilson’s pleas last month and endorsed his effort to cut the state’s vehicle registration fee by 75%. They hedged it with demands that money lost by local government be made up and a constitutional amendment provide a fund to replace lost funds, but their intended message was clear. Tax cuts: We love ‘em!

City officials love tax cuts as well. Who doesn’t? But the cities rightly have adopted a more cautious view.

Cypress Mayor Mary Ann Jones says vehicle license fees total 9% of her city’s general fund, about $1.8 million a year. She notes that the state’s promises to make up any money lost by cities if the tax is cut should be taken with many grains of salt since the state has raided cities’ coffers 16 times in the past 18 years.

Fountain Valley Mayor Laurann Cook says the tax cut is really just a shifting around of funds and could wind up costing Californians money. Cook notes that a major portion of the registration fee is deductible from federal income tax. A smaller fee would mean a smaller deduction, if any. That could mean more taxes paid to the Internal Revenue Service. Cook says it will mean another $800 million going to the IRS from California.

The state increased registration fees in 1991 when recession meant California was collecting fewer taxes. To balance the budget, Sacramento reached out for all the funds it could raid.

However, the proposed cut is nearly four times the amount taken away. As this state has learned with the economic ups and downs of the last 10 years, let alone the past few decades, the economy really is cyclical. Good times don’t last forever. The state’s budget surplus this year is not considered likely to last another few years, if that long.

Only Supervisor Charles V. Smith voted against the resolution, saying losing money from the registration fee could force the county to violate its agreements with bondholders who helped the county out of bankruptcy. The supervisors should listen to the cities on this one. The fee cut looks more like a Trojan horse than a gift horse.