Candidates Outline Their Approaches to the Budget Deficit

In January, whoever is governor will propose a budget that begins with a deficit of about $8 billion. The three major candidates on the Oct. 7 recall ballot have outlined economic plans that differ sharply, both in philosophy and their level of detail. To varying extents, all their proposals would be politically difficult to implement. The Legislature has been sharply polarized between Republicans who oppose any tax increases and Democrats who oppose deeper cuts, particularly in health and social programs.

Lt. Gov. Cruz Bustamante favors a combination of tax increases and spending cuts. The two leading Republicans, actor Arnold Schwarzenegger and Sen. Tom McClintock, think spending cuts and waste reduction can solve the problem without tax increases.

Bustamante

Emphasizing government’s “social contract,” the only prominent Democrat seeking to replace Gov. Gray Davis advocates tax increases on business and the wealthy and a partial rollback of the vehicle license fee.

He has said he would raise the income tax rate above the current ceiling of 9.3%, restoring 10% and 11% brackets for the top 4% of wage earners.

He also proposes raising commercial property taxes by ensuring more frequent assessments to keep pace with rising values. This change would require a constitutional amendment to Proposition 13.

Finally, Bustamante proposes adding $1.50 per pack to the cigarette tax and 25 cents per gallon to alcohol taxes.

He proposes exempting cars that sell for less than $20,000 from the license fee increase.

He has said he would make $2 billion in unspecified cuts and further reduce spending by cracking down on Medi-Cal fraud and requiring more employers to pay for health insurance.

Schwarzenegger

The leading Republican says taxes need to be reduced, but has offered few specifics on the spending reductions he would make.

He proposes a spending cap to keep the budget in line. He has said he would ask the Howard Jarvis Taxpayers Assn. to help him draft a constitutional amendment.

Schwarzenegger has said workers’ compensation reform could save money and improve the business climate. Other than workers’ compensation, he has not identified specific cuts or new sources of revenue.

In campaign ads, Schwarzenegger promotes an anti-tax philosophy but stops short of promising no tax increases. He has said he would roll back the vehicle license fee and fight any attempt to change Proposition 13, the 1978 initiative that reduced property taxes.

However, he has said he would not cut education. “There are certain fundamental things, I would just say, not over my dead body.”

He has declined to say whether he would have to cut health care to protect education. He has said he can’t identify cuts “until I see the detailed figures.”

McClintock

True to his long record of supporting tax reductions and opposing spending increases, the Thousand Oaks Republican has vowed not to raise taxes under any circumstances and has said he would roll back the vehicle license fee.

McClintock’s budget plan rests on the theory that tax increases reduce revenues by discouraging business investment and spending. He attributes the record revenue surpluses at the end of the 1990s to reductions in the personal income tax and corporate taxes in mid-decade. Raising taxes now would slow recovery, he has said.

To stimulate growth, he proposes cutting regulation, for example, by eliminating the Coastal Commission.

He has said he would reduce workers’ compensation costs by two-thirds.

Rather than detail spending cuts, McClintock has said the state’s bureaucracy needs to be reworked “down to the DNA level” to focus it more clearly on its mission.

For example, education funding should be changed so that each classroom is allocated a share and any money spent outside the classroom would have to be justified, he has said.