Prop. 76 sides invoke specter of taxes - Debate sharpens on bid to limit state spending

San Diego Union -Tribune ^ | 8/16/05 | Ed Mendel

[NormsRevenge]

SACRAMENTO – The politically potent T-word "taxes" is being used by both sides in the debate over Gov. Arnold Schwarzenegger's main ballot measure in his special election Nov. 8.

Analyses of Proposition 76 dryly talk about a limit on state spending, new power for the governor to make mid-year cuts if the Legislature fails to keep the budget in balance, and a change in the school-funding guarantee.

In early television ads for his initiative, and in campaign events, the governor is hitting a hot-button issue: A spending limit is needed to prevent out-of-control spending by the Legislature from forcing a tax increase.

"The choice is simple," Schwarzenegger says in a ballot-pamphlet argument for his initiative. "Pass Proposition 76 or face higher taxes such as the car tax, income tax, sales tax and even property taxes."

Could fear of a tax increase sway voters?

Opponents of the measure focus much of their ballot argument on warnings of cuts for schools, health care, police and fire and of bestowing "awesome" new powers on the governor without any oversight.

They also say the measure "opens the door to higher taxes" and, in a more surprising twist, quote the leader of a conservative Republican grass-roots group.

"Even the president of the California Republican Assembly says Proposition 76 'actually encourages tax increases,' " says the argument signed by the president of the California Teachers Association, Barbara Kerr, and others.

The quote, used twice in the ballot arguments against Proposition 76, comes from Mike Spence, president of the California Republican Assembly, who originally wanted a much tighter spending limit.

"It's an out-of-context quote," said Spence, whose group now supports Proposition 76. "They are trying to deceive voters into thinking conservatives should vote 'no.' "

In a news release last March, Spence said that the governor's initiative "actually encourages tax increases, bigger government and does nothing to fix the problems that have nearly bankrupted the state."

The threat of a tax increase is probably overblown by Schwarzenegger, given the Proposition 13 cap on property taxes, and is insincere by the California Teachers Association, which recently dropped an initiative that would have raised business property taxes to aid schools.

But tax revenue is always one side of the equation, with spending on the other, as the state struggles for the fifth year in a row with a chronic budget gap.

In the governor's view, if spending is not restrained by his initiative, called the "California Live Within Our Means Act," the budget gap will continue to grow and create pressure for a tax increase.

"The state should live by the same basic rule that the average voter lives by – don't spend more money than you have," said Todd Harris, a spokesman for the Yes on Proposition 76 campaign.

At some point if spending continues to outpace revenue and borrowing, and other deferrals are exhausted, said Harris, "what that translates into in state government parlance is a tax increase."

Arguably, Proposition 76 has already helped shrink the budget gap because Democratic legislators, wanting to avoid a deadlock that might help the governor's campaign, pretty much gave Schwarzenegger the budget he wanted last month.

A budget gap estimated by the nonpartisan Legislative Analyst to be $14 billion when the governor took office in November 2003 is now projected to be about $6 billion in the fiscal year that begins next July.

In a general fund expected to be about $96 billion next year, the gap is about 6 percent of spending. Compared to past budget gaps of 25 percent or more, it's a relatively modest shortfall.

Budget-writers may need to make cuts or find new revenue to close the projected gap next year. But it's narrow enough to be bridged by unexpected revenue from an improving economy, or to be widened dramatically by a downturn.

If voters approve Proposition 76, which is trailing in the polls, the analysis in the ballot pamphlet written by the Legislative Analyst says, "the new spending limit is unlikely to constrain state expenditures in 2006-07."

The measure would limit the growth in spending to the average rate of revenue growth during the previous three years, with any excess revenue being used for a reserve, paying off debt, and transportation.

Conservative Republicans such as Spence wanted a much tighter spending limit based on the annual growth in inflation and population, similar to the Gann limit approved by voters in 1979. The limit was softened by Proposition 111 in 1990 to raise taxes for transportation.

The line in Spence's news release last March saying the governor's proposal "actually encourages tax increases" is a reference to spending growth that conservatives think would be prevented by a tighter limit.

As the opponents of Proposition 76 note in their ballot argument, the measure does nothing to prevent the Legislature and the governor from raising income, sales and other taxes without voter approval.

In the current Legislature, a handful of Republicans (at least two in the Senate and seven in the Assembly) are required for the two-thirds vote needed to pass a tax increase.

And opposition to a tax increase is a bottom-line issue for Republicans, who say the budget gap is the result of excessive general fund spending, up 10 percent in the budget signed last month.

Republicans blocked Democratic legislation in June for an upper-bracket income tax increase to give schools an additional $3 billion, which school groups say they are owed under an agreement broken by the governor.

Assembly Democrats in the coming weeks are expected to try to bypass Republicans with a majority-vote plan for increased school funding.

In California, the state and local tax burden is about average, according to the nonpartisan Tax Foundation in Washington, D.C., which ranks California 20th among states. The ranking jumps to 9th when federal taxes are included.

When voters are asked to raise taxes, said Mark DiCamillo, Field Poll research director, the successful measures in recent years usually have two things: a tax on a small group, with revenue for a specific purpose.

Last year, voters approved a 1 percent tax increase on personal income above $1 million to aid mental health, Proposition 63. But they rejected lowering legislative approval of a tax increase to 55 percent, Proposition 56.

"To just generally lower the bar on tax increases is probably not as popular," DiCamillo said.

Filmmaker, Rob Reiner, mentioned as a possible Democratic candidate for governor, has formed a coalition that is gathering signatures for an initiative to raise the upper-bracket income tax to fund universal preschool.

Like Proposition 63, the initiative is specific about who gets taxed and where the money goes. The measure would raise $2.3 billion a year by boosting the tax rate by 1.7 percent on incomes of more than $400,000 for individuals and $800,000 for couples.

Some Democrats have often longed to restore an upper-bracket rate that was temporarily used by former Republican Govs. Ronald Reagan and Pete Wilson to close budget gaps.

"Maybe we could beat him (Reiner) to the punch," Assembly Speaker Fabian Núñez, D-Los Angeles, said this month while talking about trying to negotiate a legislative compromise on additional school funding.

While speaking to reporters in June about a tax increase to aid schools, Senate President Pro Tempore Don Perata, D-Oakland, expressed concern that Reiner's initiative could pre-empt attempts to raise revenues for kindergarten through high school.

"And if that is the case, he completely takes over a revenue source," said Perata. "So we will be down to selling pencils on the corner for K-12."

[Carry_Okie]

"The choice is simple," Schwarzenegger says in a ballot-pamphlet argument for his initiative. "Pass Proposition 76 or face higher taxes such as the car tax, income tax, sales tax and even property taxes."

That wouldn't have anything to do with interest payments, would it Arnold?

[goldstategop]

Err... where's the cutting up of the credit cards? You can't enforce a spending limit if you're still borrowing. DUH.

(Denny Crane: "Sometimes you can only look for answers from God and failing that... and Fox News".)

[Carry_Okie]

Err... where's the cutting up of the credit cards?

In your dreams.

To the surprise of many, I'm not happy Arnold turned out as predicted, although the number of people on this forum admitting they'd been had by his, "cut, cut, cut," ruse is some compensation for the vicious bashing conservatives took from the Arndroids.