Is Arnold Coming Around on Revenue?

by Robert in Monterey [courtesy of Calitics - Front Page]

It's been a few weeks since I wrote about this, but surely you all still remember my insistence that what California faces is a structural revenue shortfall - that our budget problems are the cause of a long-term inability to raise enough money to pay for our basic services, and not with how we spend that money.

Obviously such a shortfall can only be closed through new revenues - and yes, that means new taxes. Californians need to finally understand that tax cuts are not a freebie - they come with enormous costs, and that the high price of higher education, their lack of mass transit options, their lack of affordable health care, and the looming K-12 disaster with 20,000 fired teachers are just some of those costs. 30 years of tax cuts have produced social inequality and a lack of opportunity, and only new taxes can reverse those trends.

So it's welcome to hear that Arnold is hinting new taxes might be necessary. As reported in yesterday's Mercury News:

Facing the worst fiscal crisis of his political career, the Republican governor in recent months has signaled in increasingly frank language that he would consider new taxes as part of a compromise to close an $8 billion deficit.

To be sure, he's never declared: "Let's raise taxes." But more and more, he's saying he is at least open to discussing it.

"I made it very clear my proposal" does not call for raising taxes, Schwarzenegger said at one of several appearances around the state last month addressing the budget. "But I'm not the only one that is running the Capitol. I'm not the only one that is running the state of California."

Legislators, he added, are also involved in budgeting. And in the process of finding a compromise with the governor, higher taxes might enter the picture.

"I said and I made it very clear that everything is on the table," Schwarzenegger said...

...Since then, the governor has struck a more compromising tone, suggesting that ideas such as closing tax loopholes, or applying the sales tax to services currently not subjected to it - such as, say, haircuts and legal advice - should be on the table....

Some experts say it reflects a battle between two identities - one, the anti-tax conservative and self-proclaimed disciple of free-market economist Milton Friedman; the other the political realist trying to fix the state's daunting fiscal problem and dealing with a Democrat-controlled Legislature that resists his vision.

It's not surprising that the Merc points to Arnold's affinity for Milton Friedman - I've written before about how Arnold's budget plans are a kind of California shock doctrine. But it is also interesting that Arnold is gingerly exploring the path of new revenues as a possible solution.

Sales tax modernization in particular has been identified by groups like the California Tax Reform Association as a valuable method of raising billions in new revenues, as the current sales tax is more appropriate to the 1960s than the 2000s in what it covers.

It might be too much to ask Arnold to revisit the Vehicle License Fee cut, which the California Budget Project estimated cost the state a whopping $6.1 billion for the current fiscal year - more than enough to wipe out the proposed education, parks, and health care cuts, all at the cost of about $150/year per person.

Of course, Arnold's new willingness to support taxes - such as it is - runs into the stubborn opposition of the Yacht Party - Republican legislators who prefer to protect tax loopholes for the wealthy instead of doing their jobs and helping the state meet its public services obligations. These legislators are hell-bent on preventing any new taxes from being passed, and Arnold's support for new taxes would likely just cause them to dig in even more deeply.

All this suggests that the battle over the budget will not be won in the halls of the Capitol, but in the court of public opinion. Californians are going to have to step in and play the decisive role here, most likely by telling the Yacht Party where to stick it. In that sense Arnold's willingness to back new taxes is a big plus, as one of the few things Arnold is good for is mobilizing popular support for policies. Polls already show that Californians support Democrats on the budget, and with Arnold on their side, Dems might just be able to isolate the Yacht Party.

How exactly that isolation occurs will be key. Republicans will either have to fold under threat of losing their seats in the November election (a successful Denham recall would be very useful here) or we may have to go to the November ballot itself with a tax package, bypassing the Republicans. Either way, mobilizing the public to oppose the Republicans and support revenue solutions is the only way we will resolve this crisis.