Pandering on Tax Cuts

It was a creature so strange even Dr. Seuss couldn’t have dreamed it. The Legislature and Gov. Gray Davis wanted to return some of the state budget surplus to taxpayers. That’s fine. But the way they chose to do it amounts to a bald exercise in political pandering, with no scintilla of sound public policy or tax code reform. The goal of the governor and the legislators was to put checks in the hands of voters and to make sure they knew whom to thank come election time.

With the budget rolling in a $13-billion surplus, state officials obviously had to come up with some sort of tax cut or rebate.

Davis opened the bidding with a onetime income tax rebate of $1.5 billion. The Senate balked, gutted Davis’ plan and replaced it with a $1.1-billion sales tax rebate. Davis yielded but insisted on including a 0.55% reduction in income tax rates. Assembly Republicans refused to come through on the key vote, the two-thirds needed to pass the $100-billion document. They opposed the income tax cut and claimed the rebate threatened to suspend future steps in the car tax cut, a GOP initiative in 1998.

Then, on the other side of the Capitol, the Senate pulled a new rabbit from the tax cut hat: an acceleration of the five-year car tax cut so that it would be fully implemented during the next two years, at a cost of $1.4 billion. Half of next year’s cut would come from reductions in auto registration fees. The rest would be sent to car owners in the form of rebate checks. More checks would follow in 2002.

With some support among Assembly Republicans, the budget was finally passed. Davis said he’s satisfied with the car tax cut despite his previous opposition to any permanent rollback. He plans to sign the budget into law Thursday.

It’s fair to ask why the state did not just trim the registration fee and save the $22.2 million it will cost to mail rebate checks. The governor’s answer: “People don’t appreciate the fact that they’re getting a rebate unless they see it in their hands.” And he’ll get to send along with the checks a personal message--it won’t quite say, “Who loves you, baby?” but it will be close.

Meanwhile, the Legislature had to pass an emergency bill to keep the budget surplus from triggering an automatic quarter-cent reduction in the state sales tax, which would have amounted to about $1 billion a year. The sales tax was increased in 1991 to boost revenue during the recession, with the promise it would be reduced in better economic times. That broken promise just adds to the sorry story of Sacramento and tax cuts in 2000.