Making budgetary sense

Gov. Arnold Schwarzenegger likes to play chess, so the 2003-04 budget proposal he presented last week probably should be seen as an opening gambit in a contest with Democratic legislators that ultimately will require both parties to compromise.

Let’s hope they do so, because his proposal is in many ways a disaster.

For one thing, it’s far from free of the kind of budget gimmickry and borrowing against the future that Schwarzenegger so decried in his predecessor’s budget proposals. And, as the independent state legislative analyst pointed out this week, it leaves an ongoing deficit of $6 billion or more. Second, where it is straightforward, it asks the poor and the middle class to pay—in reduced benefits and services for the poor, reduced police and fire protection at the local level, and higher college fees for the middle class—while leaving the wealthy untouched.

This comes following the new governor’s rollback of the politically unpopular but eminently fair car tax, an action that increased the budget deficit by a whopping $4 billion. He’s now asking welfare recipients, the disabled and college students to pay for the services car owners used to pay for.

Schwarzenegger seem to be forgetting two important things. One is that virtually every state in the country is facing a budget deficit right now, because of the weakness of the national economy and declining tax revenues. California may have a “spending problem,” as he says, but it also has an “income problem.” Second, the wealthy have enjoyed huge federal tax savings in recent years—it’s estimated that those in the top 1 percent in income have saved, on average, $90,000 per year—and besides, any increase in their state taxes can be written off on their federal returns.

Then there’s the matter of “jobs, jobs, jobs,” which the governor has said are his highest priority. Uh, cutting spending means cutting jobs, Arnold. In fact, it would do less damage to the economy to raise taxes sufficiently to keep those jobs.

The last time state government was in such a dire situation was during the recession years of the early 1990s, when Pete Wilson was governor. Then as now the governor and Legislature slashed services and raided local-government coffers to balance the budget. But they also instituted a temporary increase in the income tax rate—from 9 percent to 11 percent—for the wealthiest Californians. It was fair, it was right, and it was a big help in digging out of the fiscal hole.

Today, with the wealthy enjoying the huge tax breaks given them by President Bush, such a tax hike makes even more sense.