The state’s tax bill

Re “Even Reagan raised taxes,” Opinion, Feb. 26

Bill Stall misses the point of Gov. Arnold Schwarzenegger’s quote. When the governor says, “You can’t tax your way” out of our budget mess, he is not saying that it is mathematically impossible to make up the budget deficit with increased taxes, although history would suggest diminished revenue often results from higher rates.

What he is saying is that Sacramento does not have a revenue problem, it has a spending problem. The state continues to spend more than it takes in.

To increase taxes would simply be to feed the problem; lawmakers would increase spending as they always do. We need to control the rate of spending growth. That’s how to deal with a spending problem.

Assemblyman

Chuck DeVore

(R-Irvine)

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I found Stall’s article to be a refreshing historical perspective on our current budget crisis. I must highlight, though, a small inaccuracy that has significant implications in its repeated retelling.

Stall recounts that when Gray Davis took office, the dot-com boom soon went bust and the state faced a huge deficit. He then claims that Davis “doubled the vehicle license fee.” In fact, Davis merely restored the fee to the rate it had been from 1948-1998. If we had that revenue stream now, our current budget deficit would be $4 billion, not the projected $16 billion. We would not need to sell $3.3 billion in additional deficit bonds nor cut public education by $4 billion.

Voters need to know this history and what our choices actually are.

Assemblyman

Mark Leno

(D-San Francisco)

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Stall needs a history lesson. In 1991, facing an inherited $14.3-billion budget deficit, Wilson and state legislators agreed to raise taxes by $7.2 billion.

Politicians assumed that hikes would increase long-run tax revenues, thereby closing the budget gap. It didn’t happen. Revenue did rise $3.5 billion in the fiscal year the tax package took effect, but this one-time increase was not surprising because the higher tax rates were essentially being applied to past economic activity.

Going forward, however, businesses and individuals changed their behavior in response to the new taxes, resulting in a revenue drop of $2 billion over the next two years. For the third consecutive year, revenues fell short of budget estimates, and by May 1993, the state faced a massive $8-billion budget gap.

Contrary to Stall’s claims, a tax hike will not solve the state’s current budget crisis.

Lawrence J.

McQuillan

Director, Business and

Economic Studies

Pacific Research Institute

San Francisco