Davis Should Study Old Lessons on Taxes and Red Ink

Ronald Reagan was going to “squeeze and cut and trim until we reduce the cost of government.” That’s what he promised when he was sworn in as governor.

He was going to cut every department 10% across the board.

Reagan did trim a tad. But as journalist Lou Cannon wrote in his biography “Reagan,” this conservative had a “proclivity for doing what was necessary at the expense of his rhetoric.”

So to plug a budget deficit in 1967, Reagan raised taxes by a then-record $1 billion. And that was when the state budget totaled only $5 billion, $3.3 billion of it in the relevant, tax-based general fund.

The legislative author of that tax hike was then-Sen. George Deukmejian of Long Beach, whom voters later elected governor.

Gov. Deukmejian faced his own deficit dilemma in 1983. To solve it, the Republican agreed to raise the sales tax if the economy didn’t improve. It did, sparing the Duke.

But eight years later, Gov. Pete Wilson had to squeeze, cut, trim, pillage and do magic tricks to close a $14-billion deficit in a $43-billion general fund.

Even so, the Republican needed to raise taxes by a staggering $7 billion--on income, sales, cars, liquor, even candy and bottled water.

History lesson No. 1: Paring knives and cooked numbers usually will not satisfy a famished budget. It also needs taxes.

No politician at the Capitol is yet uttering the nasty “T” word as the current budget slides deeper into the red.

Projections vary, but credible deficit figures for the next budget year starting July 1 range from $8 billion to $13 billion. That’s against general fund expenditures of about $85 billion if current spending levels continue.

Numbers shift weekly, but they illustrate the severity of the problem caused by a sour economy, collapsing stock-option revenue and terrorist jitters.

Davis now realizes he should have focused sooner on energy last year and has paid a price in policy and politics. So he’s trying to jump quickly on the escalating deficit.

History lesson No. 2: Don’t look like the deer in the headlights.

Davis recently ordered agency heads to give him ideas for 15% cuts. So far, they’ve offered $5 billion in trims, an aide reports. These and other potential cutbacks will be discussed at a rare Davis-led Cabinet meeting Tuesday.

Davis is likely to declare a hiring freeze. But many politicians already have called for that, so the governor missed an opportunity to look bold.

Exempted from Davis’ cost-cutting is public safety--the California Highway Patrol, for example, but not prisons.

One problem with this budget-cutting approach is that some department directors tend to be disingenuous. “It’s the Washington Monument strategy: They threaten, ‘If you take away our parks money, we’ll have to close the Washington Monument,’ ” notes a former Republican budget advisor.

“You go through these drills and end up taking practically everything off the table. You total what’s left and say, ‘OK, we’ve collected $14.95.’ Then you go back and do it again. What was difficult the first time becomes a little less painful. You sit there and do ugly stuff.”

Everything will be on the table, insist the legislative budget leaders.

Even Proposition 98, which guarantees 40% of the general fund for K-12 schools? A two-thirds majority vote is needed to suspend that guarantee. “Nothing’s sacrosanct,” replies Assemblywoman Jenny Oropeza (D-Long Beach), a former school board member who is expected to head the Assembly Budget Committee.

Says veteran state Sen. Steve Peace (D-El Cajon), chairman of the Senate Budget Committee: “We’re going to be cutting education, social services. . . . We don’t have any choice.”

Peace advocates heavy borrowing at current low interest rates. Spend the money on construction, he says. “Keep people working.”

There also are gimmicks to be played, as previous governors have: Roll the deficit into the next year. (It’s a myth that the budget must be balanced.) With a wink, underestimate student enrollments. Raid special funds--er, borrow internally.

“If somebody doesn’t like what we’re doing, let them sue us and we’ll deal with it later,” Peace says.

It is an election year, however, and nobody wants to raise taxes. Least of all Davis, who’s running for a second term.

Wilson, Deukmejian, Reagan--and Pat Brown before them--all increased taxes in their first year as governor, long before they had to face voters.

But they did show the courage to hike taxes. Reagan certainly was not hurt. And Wilson’s statesmanship was a legacy highlight.

History lesson No. 3: It’s not fatal to raise taxes, unless foolishly you’ve promised--”read my lips”--to never do it. Davis never has.