Easy but unfair to blame Davis

By Thomas Oliphant, 8/24/2003

WASHINGTON

WHEN HE WAS the governor of California, that flaming liberal, Ronald Reagan, approved an increase in the state's top marginal income tax rates in 1967, the year he took office. Lest anyone think it was a one-time thing and he wasn't prepared to spread the burden of closing budget deficits around, the country's most famous conservative did exactly the same thing four years later. This was in an era when the quaint notion still prevailed that once elections were held, it was the responsibility of legislators and the executive to do their best to govern and try to solve problems. Times were on the tough side; the Vietnam-era inflation and recession, exacerbated by military cutbacks, had caught up with the Golden State; welfare roles were rising and revenues were stagnant.

Everyone had his idea of what the ideal solution to state budget deficits was, but the practical realities were that the only way out was compromise that had the effect of parceling out pain among beneficiaries of state programs and higher-income taxpayers.

This idea that you solved problems the best you could prevailed into the 1990s, before the Clinton boom occurred. Another conservative Republican governor, Pete Wilson, swallowed hard in his first year in office, 1991, and approved new top rates of 10 and 11 percent, along with a proportional rise in California's alternative minimum tax. The top rate has since slid back to 9.3 percent.

Apparently, what was good for those geese is unacceptable for today's gander -- the evil Democratic Governor Gray Davis. In today's politics, it is apparently acceptable for the minority Republicans in the Legislature to bring government to the equivalent of a halt, block any deficit cutting plan that directly mixes taxes and spending cuts, blame the resulting bulge in the deficit on the evil Davis, and then seek to toss him from office via recall nine months following his reelection.

When the gridlock became ridiculous last spring, Davis proposed his own version of a mixed solution, but the tack taken by Reagan and Wilson was all of a sudden unacceptable to today's Republicans, who have now been joined by one of the candidates in the recall election -- Arnold Schwarzenegger -- whose guru is the same Pete Wilson. The actor's candidacy is based on a deliberate falsehood, namely that California's are uniquely overburdened by taxes, a fiction so easily disproved that to utter it ought to be instantly disqualifying.

The fact is that, according to the 2000 Census, California stands at No. 11 on the state and local taxing scale -- collecting 11.5 percent of personal income, about a point above the national average. However, according to the California Budget Project -- a perennially reliable source of nonpartisan information -- even this is highly misleading because of the disproportionate importance of capital gains and stock-option income during the boom years. In terms of what most people who live off paychecks think of as taxes (property, income, and sales), California is squarely in the middle.

That does not mean, however, that "the people," whom Arnold claims to speak for, get a fair deal; quite the contrary. In 2002, the top 1 percent of income earners in the state, with average earnings of $1.6 million, paid 7.2 percent of that in taxes. The bottom fifth, averaging $11,000 in income, paid 11.3 percent. The middle fifth, with household income between $30,000 and $47,000(the median), paid 9.2 percent. And while this key fact is ignored by fat cats like Arnold, California has been aping other states and the federal government by shifting the tax burden from corporate to personal income.

Over the last 20 years, the corporate tax share of the state budget has fallen from 14.4 to 9.2 percent, while the share paid by workers has shot up to 48 from 34 percent.

Simply reinstating the top marginal rates Republican Wilson approved during the last budget crisis 12 years ago would cover nearly half the $8 billion shortfall California still faces. The higher rates would be paid by households with high, six-figure-and-above incomes -- a mere 2.4 percent of the population.

These same people, by the way, are in the process of collecting an obscene windfall from President Bush, some higher portion of which would go to the state under a fair system. The top 1 percent of income earners nationally will get $85,000 under the 2001 and 2003 tax cuts; if the top rates were reinstated in California, they would still have more than $75,000 of it.

The Big Lie that people like Arnold peddle is that "the people" are uniquely over-taxed while "government spending" soars. But his hedged opposition to putting taxes on the table in fact protects a special interest-influenced system that penalizes people who work for a living and exposes them to an unfair share of the burden of spending cuts that will focus on things like education, health care and prisons.

That system, for which both parties are responsible, stinks, but protecting it in the guise of attacking it is a fresh form of political fraud. Reagan and Wilson, in a different era, knew better.

Thomas Oliphant's e-mail is oliphant@globe.com.