Shaky Plan for a Tax Cut

Ask Californians if they’d rather have a tax cut or use a state budget surplus to invest in the things that will make the state a better place for the next generation: Many will take the tax cut. That is human nature, especially when government is involved. And that is the politically appealing course that Gov. Pete Wilson is following in proposing a $3.6-billion cut in the state car tax that will eat up much of the state budget surplus being generated by a strong economy.

Wilson embraced the car-tax cut this week after Republicans in the Legislature made the idea the keystone of their election-year campaign. Now, repeal of 75% of the car tax, which averages $185 yearly on each auto in the state, has taken on a political life of its own; the same thing happened in the Virginia gubernatorial election last year. And it was the centerpiece Thursday as Wilson made public a revised $76-billion state budget for the fiscal year beginning July 1. The centerpiece, that is, along with the news that a booming economy will give the state a $4.4 billion budget surplus by mid-1999.

Democrats who control the Legislature must balance the wisdom of another tax cut against the state’s huge backlog of capital construction projects and other investments in California that beg for financing, ranging from schools and higher education to parks, highways, public transportation and water systems, as well as protection of the state’s natural resources.

To his credit, Wilson is putting about $1 billion of the surplus into one-time projects including flood control, public school facilities, university buildings and an infrastructure bank available to local governments. He also has added $581 million a year to ongoing state support for public schools.

But his justification for the car-tax cut is weak when he claims it is a matter of fairness-- that the tax was increased as an emergency stopgap in bad times and should be cut in good times. In fact, the tax was raised by less than 25% in 1991 to help local governments pay for health and social programs delegated to them by the state.

Wilson has often boasted of this “realignment” as a boon to local government finance. Now, city and county officials fear, despite promises from Sacramento of legislation to restore the lost funds, that this cut would take money away.

What Wilson did not say was that he now wants the state to give back $3 in tax cuts for every $1 it took when it raised the fee back in 1991. But he did note that if the Legislature approves the cut, Californians will have a smaller tax burden than they did when he took office in 1991. This would be a major coup for Wilson should he seek the presidency again in 2000. He then could enter the critical primary in anti-tax New Hampshire as a tax-cutter instead of the governor who signed the largest tax increase in California history back in the dark days of the recession.

In fact, the Wilson administration has pushed through at least four major tax reductions in recent years, including last year’s $1-billion income tax cut, a previous 5% cut in the bank and corporation tax, tax credits for manufacturers and for corporate research and development and repeal of temporary increases in the top state income tax brackets.

If the car tax becomes a political prairie fire, Democrats may be hard-pressed to resist a partial reduction, particularly if it would help less-affluent Californians. But they also have a responsibility to make the long-range investments needed to keep California both livable and prosperous.