Gov. Shuns Most Obvious Fiscal Remedy

The late economist Herbert Stein, who as a former advisor to the Nixon White House was not the sort of person easily mistaken for a “liberal,” had little use for fiscal dodges no matter where they sprang from on the ideological spectrum.

Stein was particularly wary of the chicanery that surfaces in Washington at budget time to protect lawmakers from themselves, such as budget-balancing mandates like Gramm-Rudman. “I am both amused and annoyed at the sight of political leaders saying that they have to cut taxes because if they don’t, ‘politicians’ will spend the money,” he wrote in 1999. “I don’t think we should allow our elected officials to predicate policy on their own weakness.”

I wonder what Stein would have made of Arnold Schwarzenegger.

In releasing his budget this week, the governor described himself, pitiably, as a victim of circumstance. Spending formulas embedded into law, he suggested, cornered him into balancing the budget by skinning the poor, old and sick.

“This budget doesn’t have much in it I want,” he said, calling it “a budget that is forced upon us by a broken system.”

For someone who accumulates praise for his do-it-now demeanor the way a scow collects barnacles, the governor certainly does a lot of whining. In truth, his budget can have anything in it he wants. If any California governor in the last 20 years has had the chops to prevail over this “broken system,” it’s him.

Yet he insists, “This is all the money we have.... We must live within our means.”

The only thing limiting the amount of money the governor can spend is his doctrinaire refusal to acquire it from the most efficient and least costly source: the tax rolls. It’s obvious from his budget that he endorses in principle most of the spending programs the state undertakes -- on schooling, road building, environmental protection and so on -- or he would have taken a sharper ax to them.

But he keeps running from his responsibility to inform the voters that the right way to pay for them is cash on the barrelhead. Instead, he argues that putting the bill on the charge card -- more than $2 billion in new debt this year alone -- is the more responsible path.

Nor is it accurate to say that a tax increase is a “liberal” solution. Govs. Pete Wilson and Ronald Reagan, facing deficits like today’s, temporarily raised the top tax rates on the state’s richest residents to 11%.

Perhaps Wilson, who advises the governor, wants to spare him the pain of being pilloried by the right wing, but that’s a meager rationale for fetishizing the current top tax rate of 9.3%. (My rough math says that raising the top rate to 10% on all incomes higher than $500,000 and 11% on those beyond $1 million would yield as much as $2.5 billion a year.)

I don’t mean to suggest that the administration has no other rationale for its “no new taxes” pledge. The governor and his finance director, Tom Campbell, seem to be genuinely concerned that raising taxes would prompt companies to relocate to other states and stifle job development in California.

“Businesses that can leave do leave” because of the tax burden, Campbell told me Wednesday. He argues that today’s budget environment differs from Reagan’s and Wilson’s because employers are more mobile today, which narrows policymakers’ options.

That’s a reasonable point, although I’m not fully convinced that taxation is every businessman’s primary concern, especially in a state that, in the governor’s own words, attracts enterprise because of “its innovation, its creativity, its energy.” (He might have added: its huge customer base.)

In any event, California’s tax burden has dropped precipitously since 2000. Its rank in state taxes as a percent of personal income has fallen from eighth in the nation to 18th, according to the Public Policy Institute of California. Meanwhile, the proportion of state income taxes paid by the top 5% of taxpayers has fallen from 68% to 60%. (Who makes up the difference? The middle class.)

Is it really the case that there’s no slack in this revenue system? And is it really true that the only way to balance the budget of the richest state in the union is by cutting welfare payments 6.5%, suspending a cost-of-living increase for the most destitute and paring home-care workers’ pay to the minimum wage -- while protecting the top 5% from any sacrifice at all?

Is this what the governor meant in his State of the State message by “a government that encourages the dreams of the people”?

Setting aside the question of whether this governor is really powerless, it’s worth examining his proposals to address the so-called autopilot formulas that he blames for tying his hands.

One measure would eliminate the government’s ability to suspend the formulas mandated by Proposition 98 and Proposition 42, which govern school spending and the gasoline tax, and to shift the money to the general fund. Schwarzenegger wants to divert the gasoline tax for two more years, which would carry him through his current term, but deny the same option to his successors.

This plan, weirdly, doesn’t shut down the autopilot; in fact, it cinches the seat belt tighter. “It flies in the face of his complaint,” notes Jean Ross, director of the nonpartisan California Budget Project.

Campbell says the idea is to remove the temptation for future Legislatures and governors to raid the Proposition 98 and 42 funds, an action that only contributes to higher spending later on. But treating the state’s future political leaders like 3-year-olds is just the kind of thing that Herb Stein would have abominated.

Golden State appears every Monday and Thursday. You

can reach Michael Hiltzik at golden.state@latimes.com and read his previous columns at latimes.com/hiltzik.