TIME: Almanac 1993/TIME Almanac 1993.iso/time/061890/0618109.000

Text File | 1992-08-28 | 10.8 KB | 222 lines

                                                                                NATION, Page 16

Tunnel Vision


Do voters finally see a need for new taxes? Californians did --
but only when they could also see the payback

By RICHARD LACAYO -- Reported by Hays Gorey/Washington and
Jeanne McDowell/Los Angeles


    Moscow is not the only cradle of revolution where people are
having second thoughts these days. Now there's California too.
The state that gave birth to the taxpayer revolt in the 1970s
took a step back last week from the antitax orthodoxy that has
kept American government in a fiscal straitjacket ever since.
California voters, who have tended to feel about taxes the way
Lenin felt about capital gains, agreed to ballot Proposition
111, which doubles the state gasoline levy to fund improvements
for gridlocked highways. The outcome of that vote reverberated
not just on the West Coast but all the way to Washington.

    It was through another ballot initiative, Proposition 13,
that Californians slashed property taxes 57% in 1978; one year
later, they approved a no less important cap on state spending.
In the decade that followed, nearly 20 other states adopted
similar measures, and Ronald Reagan and George Bush rode the
antitax sentiment into the White House.

    There were those who were ready to see the Proposition 111
vote as a sign that after more than a decade of sharply reduced
services, Americans have at least grudgingly acknowledged the
need to pay for badly needed improvements in their roads,
schools and environment. "They are ready to put their money
where their mouths are," says former San Francisco mayor Dianne
Feinstein, winner of the state's Democratic gubernatorial
primary. "I think it signals a new day." Even Arthur Laffer,
the supply-side economist who was instrumental in enacting
Proposition 13, declared the end of the revolution he helped
usher in. "If the state where the tax revolt was invented
rejects it," he glumly asks, "can Washington be far behind?"

    Yes, possibly. The fact is, Californians approached
Proposition 111 with trepidation, even though the state's 9
cents-per-gal. gas tax, last increased in 1983, is one of the
lowest in the country. (The national average is 15.8 cents.)
No wonder then that California ranks 48th among the 50 states
in per capita spending for highways -- with predictable
results. In a motor-happy state, the highways are crumbling and
inadequate.

    Given all that, the gas-tax referendum might have been more
significant if it had been rejected -- a sign that voters would
rather suffer any discomfort than reach into their pockets. In
fact, the increase was approved by just 52% in an election in
which less than 40% of registered voters took part. "The
message to government is `Give us a discrete program, a finite
cost, convince us that you're going to spend the money wisely,
and we will write you a limited check,'" says Sherry Bebitch
Jeffe, a political analyst at Claremont College's graduate
center for politics and policy.

    Not quite grounds for declaring a counterrevolution. Yet
there are other signs that the constraints imposed by
Proposition 13 have begun to chafe. A position paper compiled
by assemblyman Tom Hayden points out that California, once a
leader of progressive government, has dropped to near last
place among the 50 states and the District of Columbia in
measures of living quality, including per capita spending on
schools, classroom size and housing affordability.

    Though Californians have approved small tax increases on a
local level in recent years, the state faces a $3.6 billion
budget shortfall. With state funds shrinking, many spending
burdens have been passed down to localities, which in turn pass
them along to new-home buyers. To offset the cost of sewage and
street building, parks and schools, local governments began
imposing "impact fees" of as much as $25,000 for a newly built
home. So it was no less important that California voters also
agreed last week to loosen the state spending cap and exclude
certain expenditures from the limits.

    Evidence of antitax sentiment is still widespread, and not
just in California. In Illinois a group of irate taxpayers is
promoting a ballot initiative that would require tax increases
to be approved by three-fifths of the state legislature instead
of a simple majority. Earlier this year more than 1,000
property-tax protesters stormed the office of Kansas Governor
Mike Hayden. Connecticut's Governor William O'Neill decided
against running for a third term this fall partly because his
poll numbers dropped sharply after he threw his support behind
higher taxes.

    Whatever the political perils, taxes have become a subject
that many state lawmakers cannot avoid. Slower economies,
especially in the Northeast, have left more than 25 states
facing deficits. Since every one of them but Vermont is
required by law to have a balanced budget, deficits mean tax
increases, spending cuts or both. Moreover, many states have
been hiking taxes to make up for declining federal funds for
clean water, job training, low-income housing and sewage
treatment. Increased state and local taxes, as well as a larger
Social Security bite, explain why, for all the ballyhoo over
the Reagan-era tax cuts, Americans today pay roughly 22% of
their income in taxes, just as they did in 1980.

    In Washington the sense of urgency is less impressive. Last
week the bipartisan budget summit involving congressional
negotiators and White House aides resumed just two days after
the California vote. But the summiteers are far from reaching
an agreement on a mix of spending cuts and new revenues that
will hold the 1991 deficit to the $64 billion mandated by the
Gramm-Rudman-Hollings law. They are even talking of putting off
a budget agreement -- and the announcement of new "revenue
enhancements" that it might entail -- until a lame-duck session
of Congress begins, conveniently, after the November elections.

California Democrat Leon Panetta, chairman of the House Budget
Committee. "There's never a good time to do it."

    Eventually the time will come. When it does, how should
lawmakers inflict the pain on their constituents without
hurting themselves in the bargain? California's experience, and
that of other states, suggest the following tactics:

    -- Target the tax to a purpose the voters understand.
California's gas tax was presented as a "user fee" that would
translate into relief for overcrowded highways. A $5 million
campaign for Proposition 111 and its companion Proposition 108
spelled out the spending goals to the last detail. "Our
strategy was to explain that this 5 cents a gallon is $5 a
month to the average family of four," says assemblyman Richard
Katz. "If you live in the San Fernando Valley, that gets you
two lanes on the Simi Valley Freeway and an additional lane in
each direction on the Ventura Freeway."

    That direct quid pro quo is an advantage Washington does not
yet enjoy. Polls show that even on a federal level, voters
accept the idea of taxes to address specific problems; reducing
the deficit is not one of them.

    -- Tie the tax to behavior. "If you don't drink, smoke or
drive a car, you're a tax evader," quips Tom Foley, Speaker of
the House of Representatives. Taxes on gasoline, cigarettes and
liquor, as well as license fees and telephone surcharges, have
proved to be the easiest way to get money from voters. Although
they are more regressive than income taxes, they give people
a feeling that they can control the amount of tax they pay by
limiting the amount of goods or services they consume. Levies
on alcohol and cigarettes can be portrayed as appropriately
discouraging bad habits -- Florida Governor Bob Martinez vetoed
a gas-tax increase last month, but he and the legislature are
considering raising the tax on cigarettes to 43 cents a pack.

    -- Join hands and jump off the cliff together. So goes
Wyoming Senator Alan Simpson's scenario for a bipartisan
federal deficit reduction. The tactic proved its worth in
California. Proposition 111 had the support of the
gubernatorial candidates of both parties and more than 250
business, labor and social-service groups that spanned the
political spectrum. Bipartisan support reduces a politician's
vulnerability to attack by opponents as a tax-happy spender.
In Washington Democrats insist they need that cover from
Republicans -- but Republicans fear they would be exposed to
primary challenges from even more conservative candidates back
home.

    -- Make the courts force you to do it. "I was between a rock
and a hard place," said Texas Governor William Clements last
week. After two vetoes, he had finally accepted a $520 million
sales-tax increase to comply with a state supreme court order
to remedy disparities in school spending. "There was no other
way. It was not a pleasant circumstance, and it's not one that
I am happy with," he said. Clements may have been protesting
too much. Texas politicians are practiced at shifting the blame
onto judges: last year the state approved a $400 million bond
issue for new prisons after the state supreme court ruled that
crowded conditions violated inmates' rights. In March, after
Kentucky's Supreme Court invalidated the school finance system,
legislators there ponied up a $1.3 billion education package
by adding 1% to the sales tax and broadening the income tax.

    -- If all else fails, try leadership. New Jersey's
Democratic Governor Jim Florio, facing a $592 million budget
deficit, kicked off his new administration with a plan to raise
more than $2.6 billion in new taxes. Florio proposed doubling
income taxes for taxpayers earning more than $150,000, as well
as cutting $1 billion from popular programs. Not all the money
would be used to balance the budget. Some of it -- shades of
the Great Society! -- would go to New Jersey's poorest
neighborhoods and school districts.

    Florio had some political cover. He blamed the state's
deficit on his Republican predecessor, and he got a boost last
week when the New Jersey Supreme Court ordered a statewide
funding scheme for schools. Moreover, Florio's plan would shift
some of the burden for education away from property-tax
increases, which were rejected in nearly half of New Jersey's
school districts last April. Most important, Florio's bold
decision to trigger a tax fight during his first year in office
is based on the political calculation that voters may forgive
and forget by the time he is up for re-election in 1993. That
tactic worked in the past for one of the savviest Governors
ever to approach the problem, who enacted his state's biggest
tax increase during his first year in office -- California's
former Governor Ronald Reagan.