Reversing Car Tax Pledge Is Best Course

Now that Arnold Schwarzenegger is poised to morph from a candidate to a governor pledged to the sainted cause of fiscal responsibility, it’s timely to ask why he still intends to launch his administration by blowing a $3.6-billion hole in the state budget.

There is no avoiding the hole, assuming the governor-elect follows through on his pledge to rescind the car tax increase implemented this summer as a budget-balancing device.

As must be clear to any follower of the flapdoodle that passed for debate during the recall race, the car tax hike was Count 1 in the indictment of Gov. Gray Davis. State Sen. Tom (“Stop the Car Tax”) McClintock made its repeal the centerpiece of his campaign, and even Lt. Gov. Cruz Bustamante pledged to roll back most of the increase, which went into effect Oct. 1.

As for Schwarzenegger, he staged some crowd-pleasing agitprop last week by dropping a wrecking ball on an Oldsmobile spray-painted with the words “Davis Car Tax,” while placing the rollback tops on his to-do list for the first day of his governorship.

All the candidates, of course, were only following the political axiom that an anti-tax position always sells. But this one had extra special appeal. Out-of-state newspeople loved the car tax issue because it played into their caricature of Californians as auto-obsessed. Even locals got into the act: One L.A. TV crew headed for an RV dealership, where they tapped into a festering pool of resentment among purchasers of $250,000 Land Yachts (tax: $5,000).

Based on this, you would think the car tax was a uniquely cunning attack by the Davis administration on every Californian’s divine right to drive. I almost thought so myself, until I learned that it was introduced in 1935. The “vehicle license fee” rose to its long-standing level of 2% of a vehicle’s purchase price in the ‘40s, and was reduced by two-thirds starting in 1999, thanks to legislation backed by then-Gov. Pete Wilson, a Schwarzenegger political guru.

What none of the recall candidates ever answered during the campaign, however, was this fundamental question: What’s so bad about the car tax?

The truth is that this is exactly the kind of tax that someone would expect both conservatives and liberals to embrace.

Consider the following virtues, cherished by Tory doctrine. First, the car tax is a flat tax: It’s pegged at 2% of a vehicle’s value, whether you own a wreck or a Rolls. (The vehicle value on which the 2% is calculated drops annually, starting at the full purchase price and ending at 15% of the original price in the 11th year and thereafter.)

Further, the tax is broadly based -- you own a vehicle, you pay. McClintock’s complaint that it’s unfair to tax what has become a necessity for all Californians is a triumph of illogic, since the broad applicability is precisely what makes this tax fair. (Haven’t conservatives been grousing lately about income tax breaks for the poor? Well, here’s a counterweight.)

Finally, the car tax is almost impossible to evade. You can try not registering your car or using an out-of-state address. But you risk having your dodge discovered at an inopportune moment, such as when a prowl car pulls you over for a busted taillight and your documentation comes up, say, a few notches short of a dipstick.

There’s also plenty in the car tax for liberals to love. Although the tax is flat, it incorporates a sort of built-in progressivity: Because the wealthy are likely to buy costlier cars than the poor, they’ll tend to pay more. (The purchaser of a new Ford Escort would face a car tax payment of about $300 the first year; the purchaser of a new Hummer, as much as $2,000.) But every citizen’s ratio of tax to personal income is entirely under his or her control. You want to pay less? Buy a cheaper car.

It’s true that taxpayers with five kids may need an SUV to transport the brood. Yet that doesn’t mean they’re required to drive a Range Rover when a Chevy or Hyundai could fill the bill just as well.

The tax even has an effect that should please environmentalists: It might nudge buyers away from the biggest gas guzzlers, which tend to be more costly than fuel-efficient models and therefore carry a heavier levy. (Gas-saving hybrid cars, by the way, are among the few vehicles that receive a tax break.)

One feature that should please both ends of the political spectrum is that car tax revenue goes directly to city and county governments. These are precisely the localities that are supposed to be founts of wisdom about how to spend public funds. Think of all those complaints about Sacramento imposing unfunded mandates on local governments. In this case, Sacramento raises money statewide and funnels it directly to local coffers, most of which is used for police and fire protection.

That’s why the most vocal opposition to Wilson’s tax reduction proposal in 1998 came from local officials. Nor were they mollified by his plan to cover their loss out of the state’s general fund. Instead, they foresaw that the scheme would only add to their dependence on Sacramento, which had become bad enough after Proposition 13 deprived them of a huge chunk of property tax revenue.

In light of this history, then, why did the car tax become such a lightning rod this summer? Plainly, one reason was the shadowy maneuvering behind the tax hike.

Davis and other proponents argued that, by law, the tax had to be automatically restored to 2% if money became “unavailable” to make up the shortfall to local governments, such as during a budget crisis. But their real rationale was procedural: This was perhaps the one revenue-raising step the administration could take without either a legislative or public vote.

A deeper reason for the anger is that, all other things being equal, people always feel pain more intensely than pleasure.

When Wilson reduced the car tax, most folks presumably felt a mild frisson of gratification upon seeing their lighter auto registration bills. When the state put the rate back up -- even though it was merely being restored to the same level people were paying a year or two before -- they reacted, understandably, not with a modest twinge of discomfort but with the screaming agony of martyrdom.

It is also understandable that the opportunists who claim to be responsible political leaders in this state would take advantage of this emotional paroxysm and run with it. But is this the right way to make public policy?

In the days to come we shall hear much about how Schwarzenegger’s victory is a call for fiscal restraint and a sign that the public is weary of being lied to about the state’s economic condition. But this victory was based on the biggest lie of all -- the myth that we can somehow have all the programs we want without shelling out for them.

The raising of revenue must be based on some standard, whether the value of cars, the value of real estate, the level of personal income or the volume of merchandise sales. If Mr. Schwarzenegger, who as a candidate railed about the state spending more than it took in, rescinds the car tax increase, he’ll obviously have to make up the nearly $4-billion difference by hitting taxpayers in another, possibly more painful, place.

Does anyone really believe that he can find $4 billion in savings by ferreting out those whipping boys of desperate politicians, “fraud and waste”?

So here’s a modest proposal: Schwarzenegger, who has shown he’s not above going back on his campaign promises when he wishes (remember no “special interest” donations and no negative campaigning?), should renege on this one. We should all lend him our support if he demonstrates real fiscal responsibility by adopting the following as the theme of his new administration: “Save the Car Tax!”

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Golden State appears every Monday and Thursday. Michael Hiltzik can be reached at golden.state@latimes.com.