Bush, Davis Take Two Tacks on Taxes

Times Staff Writer

President Bush and Gov. Gray Davis both are grappling with sluggish economies and sharp slowdowns in tax revenues. But the leaders of the two biggest economies on the continent are taking opposite paths in responding to the similar challenges.

The Republican president last week proposed cutting taxes, with much of the benefit going toward higher-income taxpayers; the Democratic governor proposed raising taxes, especially on those at the upper end of the spectrum.

The proposals in part illustrate the ideological divide between party standard-bearers. But they also reflect a host of pragmatic and political concerns driving the president and governor in different directions.

For Bush, the proposed tax cuts are a cornerstone of his 2004 reelection campaign. They appeal to his base of Republican voters and donors. They also provide a mainstay for his argument that he is taking action to boost the economy.

For Davis, tax hikes are the only politically viable way out of the California fiscal crisis. There is virtually no chance that fellow Democrats who control the Legislature will pass a budget without raising taxes to offset billions of dollars in spending cuts needed to balance the books.

Perhaps most important of all is the difference in rules under which the two chief executives work. Bush, faced with what is fundamentally an economic problem, can run deficits to stimulate growth and investment. Davis, by contrast, is confronting a narrower fiscal crisis and must balance the state's budget because he is bound by a state Constitution that prohibits deficit spending.

"In a sense, it's a study in the difference between presidents who can run deficits and governors who can't," said Ross K. Baker, a political science professor at Rutgers University. "A president can be very generous with tax cuts. This is a luxury that governors don't have."

Or, as Davis spokesman Steven Maviglio put it: "They can print money. We can't. That's the difference."

The White House says Bush's plan would cut taxes by $670 billion over 10 years. The centerpiece of the proposal is a plan to eliminate taxes on stock dividends.

Bush has promoted the proposal as a "jobs and growth" package that promises long-term benefits for the economy. Democrats have attacked it as a fiscally irresponsible tax break for the rich.

Some Republicans, including Sen. Lincoln Chafee of Rhode Island, have joined Democrats in questioning the plan's value to the economy. But in the mid-term elections last year, Republican candidates used the Bush tax cuts of 2001 as a winning issue that helped the party regain control of the Senate and expand its majority in the House.

"The Democrats twisted in the wind for the better part of two years on how to handle this issue," said Steve Schmidt, communications director at the Republican Congressional Committee. Bush is poised to stress tax cuts again as a main theme of his reelection campaign.

Democrats seeking to challenge Bush in 2004 see the president as vulnerable on the economy; his popularity since the attacks of Sept. 11, 2001, has stemmed largely from his handling of terrorism and the war in Afghanistan, polls show.

"Bush has to be as energetic and aggressive on economic policy as on foreign policy," said GOP strategist James P. Pinkerton, a White House aide under the first President Bush. "There's another president named Bush who put all his chips on a war in the Middle East, won the war and then lost" his campaign for reelection in 1992, thanks partly to a perception that he neglected the economy.

Whatever the political calculations, the contrasting economic approaches of Bush and Davis still demonstrate their different philosophies -- and some core values of their respective parties. Although neither Bush nor Davis is an extremist within his own party, their packages do reflect their parties' approaches -- with Republicans more inclined to return money to taxpayers and Democrats more willing to stimulate the economy with government spending.

In Chicago on Tuesday, Bush described his tax-cut package as a tool to "speed economic recovery and the pace of job creation" by allowing Americans to keep more of their money to spend and invest.

"Government spends a lot of money, but it doesn't build factories, it doesn't invest in companies or do the work that makes the economy go," Bush said.

That same day, Davis made the opposite case as he promoted his own "jobs package" at a school construction site near Sacramento. To spur the economy, Davis said, the state would speed up spending on public construction projects. He urged Bush to follow suit and plow more federal money into highway and public transit projects.

Two days later, Davis proposed raising taxes by more than $8 billion as part of a state budget that would also slash spending by nearly $21 billion across the gamut of programs, including schools, welfare and health care.

"These are hard choices," Davis said. "I did not like making them. But the buck stops with me, and I had to make them."

On Saturday, the two chief executives continued to make the cases for their prescriptions for economic revival. Bush touted his plan in his weekly radio address, while Davis, appearing on CNN, said the president's proposal, while potentially good in the long run for the stock market, "does nothing in the short term" for states like California that need a jolt of economic energy.

State Assembly Speaker Herb Wesson (D-Culver City) said the two economic plans reflect "the stark differences between a Democratic mind-set and a Republican mind-set."

But he also recognized the constraints faced by Davis, given the balanced-budget requirement, as well as practical strategic considerations. Despite solid Democratic control of both houses of the Legislature, the governor needs the votes of at least six Republicans in the Assembly and two in the Senate to win the two-thirds majority he needs to pass a budget.

Democrats have welcomed Davis' willingness to broach tax hikes. To Republicans, Davis argues that his plan does more cutting of programs than it does raising of taxes.

By arguing both points, he hopes to find the narrow middle ground that could win approval in the Legislature.

"It would appear that the Democrats in the state are conceptually on the same page," Wesson said. "This can't be done on cuts alone."

The Davis budget includes a sales-tax increase that would affect all Californians, but also an increase in the income tax that would apply only to the wealthiest residents. It would affect only individuals earning more than $136,115 and couples making more than $272,230.

But Davis took pains in his presentation on Friday to avoid leaving the impression that singling out the rich reflected any personal ideology. Three times, he made a point of saying the plan had been modeled on a tax increase approved by his Republican predecessor, Pete Wilson, during the state's last fiscal crisis in the early 1990s.

Wilson pollster Dick Dresner recalled that the former governor had been deeply unhappy about raising taxes, but concluded he had no choice, given the magnitude of California's budget shortfall and the depth of the spending cuts.

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