Arnold's Next Script: Debt And Taxes

by Donal Brown

In the last days of California's recall campaign, allegations surfaced that besides groping, you used foul language -- including the infamous "F" word -- around women, making them uncomfortable. Now, to have any success pulling the state out of its financial morass, you'll need to utter the dreaded "T" word.

Yes, that's t-, t-, t- taxes. There, it's out. And if the country and California is to prosper, it should stay out.

Arnold, this is not a movie set, where many different kinds of choices by the director can all lead to box office smashes and soaring popularity. In California politics, there are no easy choices. Whatever you do is likely to cause great discomfort to many and drive down your poll ratings.

You need taxes to get California out of its deficit. But Republicans have vilified taxes, making it almost impossible for you, or any politician for that matter, to raise taxes for the public good.

President George W. Bush hasn't done you any favors here. The younger Bush learned the wrong lesson from his father's experience. Bush Sr. made the mistake of basing his campaign around the now-infamous phrase, "Read my lips: no new taxes." An electorate primed by Ronald Reagan and other conservatives, who denigrated the idea of taxes as a potentially sound fiscal tool, watched Bush Sr. go back on his word and promptly turned him out.

Many economists say that by raising taxes in the late 1980s and making investments in technology, the elder Bush set the table for the economic recovery of the 1990s. That's the problem with politics, Arnold. Decisions may turn you out of office, even if they turn out to be the best for California in the long term.

George W. made tax reduction the foundation of his administration, squandering the huge budget surplus bequeathed him by President Clinton. In reality, the only obscene referent for the T-word is Bush's huge tax cuts for the rich.

Republicans have long punished Democrats with the label, "tax and spend liberals." But it's far worse for conservatives to spend exorbitantly without generating the revenue to pay the bills. Yet that is precisely what is happening nationally.

Arnold, consider that deficits may be far more damaging to the country than raising taxes. The United States is burdened by a huge deficit, $455 billion this year, and it is growing with the unforeseen billions needed to rebuild Iraq. Foreign borrowing has been financing the debt, and up to now the United States has been paying low interest rates. Mounting deficits could now drive up interest rates and inflation, spelling economic disaster.

With the economic boom turned to bust, and with little federal money available to states, your ousted opponent, Gov. Gray Davis, along with governors of other states, made considerable budget cuts. It was fiendishly difficult, since the state is educating a huge number of children of immigrants and attempting to provide health insurance for children. Add to this the mandated spending constraints such as Proposition 98, which requires the state to spend 40 percent of general funds on education, K-12.

In your campaign, you indicated you would maintain spending for education and assess no new taxes as you look for ways to trim the budget even further. Somehow that doesn't sound like a winning formula.

Let's take Indian gaming money first. In your ads, you failed to mention that Indian gaming interests were already contributing $130 million a year to the state coffers under an agreement with Davis. Even if you successfully renegotiate the agreements with the Indians -- and after the beating they took in your ads, will they treat you as an ally? -- it will not suffice. Remember that the deficit totals $38.2 billion.

As for cutting the rest of the budget, your audit may find possibilities here and there, but you're up against the special interests, mandated constraints and pleas from citizens to maintain essential services for children, the mentally ill, the elderly and the disabled. You might be able to cut the salaries of state employees, but that would only yield a few million in savings.

Since you are not beholden to the prison workers union, you could make a good start by turning out prisoners incarcerated for nonviolent crimes, mainly drug offenses. But cuts in prison expenditures don't hold great promise, because to deal with the consequences of the "Three Strikes" sentencing law, the state must soon build 15 new prisons.

There's only one way out of this mess. But take comfort, Arnold, in the fact that 40 percent of the adjusted gross income in the state is earned by the top 5 percent of taxpayers. They should be happy to help you out -- for the good of everyone.