Angelides Dares to Say the T-Word

In an election in which the Democratic candidates for governor have more in common than in conflict, state Treasurer Phil Angelides has isolated himself with a politically hazardous, if nervy, plan: raise taxes.

No major candidate has been more public than Angelides about increasing taxes. His enthusiasm is tempered only by a focus on targeting the wealthy and corporations, not ordinary Californians, to increase public school funding and balance the state budget.

California, home of the iconic anti-tax measure Proposition 13, has a mixed record on embracing higher taxes -- and it has punished some candidates who did so. After raising the vehicle license fee -- defined by its opponents as a “car tax” -- in 2003, former Democratic Gov. Gray Davis was quickly recalled from office. Lowering it was the first act of his successor, Republican Gov. Arnold Schwarzenegger.

Angelides compares himself to previous California governors who raised taxes -- Ronald Reagan and Pat Brown, among others -- and frames his position in moral terms. In an interview, he said the seminal issue of his campaign is “whether we are going to have the guts and the will to provide our kids with the best education possible.”

In the past week alone, Angelides has given three news conferences focusing on raising taxes to “fully fund education.” It has drawn media attention at a critical point in his campaign -- even as opinion polls show a tightening race with state Controller Steve Westly for the Democratic nomination, he has pulled his TV ads off the air to save money for the final weeks before the June 6 primary.

Garry South, Westly’s chief political consultant and a former advisor to Davis, called promoting tax increases to such an extent “beyond idiotic.”

“I can’t even begin to tell you how stupid that position is,” South said. “If he is the Democratic nominee in November, he is toast.”

Westly has said that he would consider tax increases only as a last resort.

Schwarzenegger’s campaign wryly suggested that Angelides was at least being honest about his intentions.

“Steve Westly, on the other hand, appears to be hiding the ball when it comes to increasing taxes,” said Matt David, a Schwarzenegger spokesman.

Schwarzenegger has consistently rejected raising taxes but has funded the state’s budget shortfall with long-term borrowing. That puts a future burden on taxpayers because of the interest and principal payments on the debt.

South said Angelides was being disingenuous just by asserting that he could raise taxes, given the reluctance of Republicans in the Legislature to embrace even fee increases. Under state law, a two-thirds majority is needed to raise taxes -- requiring a handful of Republicans to agree.

In response, Angelides said he would use his political capital as governor to convince the Legislature to approve tax increases. If that didn’t work, he said, he would take his case to the voters through a ballot proposition.

“If you believe in something, you have to be able to fight for it all the way,” he said.

Unlike presidential candidate Walter Mondale -- who lost to President Reagan in 1984 after vowing to be honest about raising taxes -- Angelides has honed his message and segregated his targets. His language is more populist than tax-and-spend liberal.

On the campaign trail, Angelides talks about “closing corporate tax loopholes” and “asking multimillionaires to pay their fair share.” He brushes close to a class warfare argument: “They may have fewer Ferraris in the short term -- but this whole state will have a better-educated workforce for the long term.”

He promotes himself as a straight shooter. “Any candidate for governor has an obligation to be clear, to lay out the hard facts and specifics,” he said this month.

It is a familiar theme for him: In 2003, he accused Republicans of taking a “dumbed-down approach, which is no new taxes.”

That same year, he called for raising taxes on commercial properties so they would be more aligned with assessed value. In 2004, he suggested lifting the exemption on sales taxes for farm equipment. He has also proposed raising taxes on alcohol and imposing a new tax on certain services such as legal and accounting fees.

California voters are not necessarily against raising taxes on upper incomes: two years ago, voters approved a 1% tax increase on those who make more than $1 million to pay for expanding mental health services. Proposition 63 passed with nearly 54% of the vote.

Public opinion surveys also show a somewhat receptive audience thus far to Proposition 82, a June ballot initiative that would raise the tax rate on individuals making more than $400,000 and couples making more than $800,000 to fund a statewide preschool program.

Angelides and Westly support the $2-billion tax increase in Proposition 82. But Angelides would raise taxes even further -- to increase school funding, reduce fees at public colleges and expand teacher training and recruitment. In addition, the state still spends about $4 billion more than it receives in taxes -- and Angelides says his plan would close that so-called structural deficit. The total cost is about $8 billion in additional taxes.

For a several years, as California has struggled with a persistent budget shortfall, economic experts have suggested temporary tax increases. In a 2003 letter to the Legislature, 14 respected California economists argued that a below-average education system would hurt the economy more than a tax increase.

“It is totally unrealistic to pretend that spending cuts alone can solve the problem,” they wrote. What followed from the Legislature and Davis was the vehicle license fee increase, since reversed by Schwarzenegger.

Notably, Angelides spends almost no time detailing potential budget cuts, which would put him at odds with powerful Democratic interests. In an interview, he said California should increase the corporate tax rate -- not just close loopholes -- as well as the rate on upper incomes. He said that over the past decade, corporations and the wealthy have enjoyed $17 billion in federal and state tax cuts -- and he would take only a portion of that.

Angelides carefully avoids making broad “I would raise taxes” statements that could be used to imply he would target all taxpayers. But he still faces a skeptical public, political experts said.

Mark A. Peterson, a political science professor at UCLA, said voters “want someone who will tell you the truth. Well, yeah, but they don’t want to be told their taxes are going up. That is a truth they don’t want to hear.”

One irony about raising taxes on the wealthy is that many ordinary Americans, aspiring to be rich, oppose them. Polls show that the strongest support for tax increases on upper incomes comes from wealthy liberals -- not middle-class Americans, said John Samples, director of the Center for Representative Government at the Cato Institute.

Samples said candidates such as U.S. Sen. John Kerry (D-Mass.), who embraced tax increases on the rich in his 2004 presidential campaign, misjudged how the public would respond.

“He thought it was just a policy position, when it fact it was a signal to voters: you are either for more taxes or not,” Samples said.