Gov. tiptoes over no-tax line

SACRAMENTO —  Give him credit: Gov. Arnold Schwarzenegger is the first Republican in California’s Capitol to begin taking off the budget blinders.

He’s actually advocating tax increases, give or take some semantics.

True, many conservatives -- professional politicians and party activists -- don’t consider Schwarzenegger a real Republican. Politically, he’s neither fish nor fowl. In fact, conservatives see him as a RINO -- Republican In Name Only.

But Schwarzenegger is the only Republican to win a top-of-the-ticket office in California since 1994. He won 91% of the GOP vote in his 2006 reelection, based on a Times exit poll. He’s the state’s most popular politician, enjoying a job approval rating (60%) even higher than Democratic U.S. Sen. Dianne Feinstein’s (50%), based on the latest Field Poll. So he’s basically in sync with California voters, especially Republicans.

The governor now apparently is willing to spend some of his popularity in an effort to straighten out the state’s budget mess. He understands, advisors say, that by pushing for tax increases -- even if he calls them loophole closings -- his popularity is very likely to fall.

And, face it, Schwarzenegger did win reelection by promising not to raise taxes and by pummeling his Democratic opponent, Phil Angelides, as a tax-and-spender. So he’ll need to perform some flip-flopping acrobatics.

The governor’s goal in recent days, advisors say, has been to kick-start negotiations over the final $8-billion plug for the state’s budget hole. The deficit projection for the current and next fiscal years had been $16 billion. But the Legislature and governor halved that amount last month with some emergency cuts, borrowing and accounting tricks.

Last week, Schwarzenegger decided to step across his no-tax line in the sand in order to point the way toward compromise with Democrats.

Flying to Los Angeles aboard his private jet, aides expressed a sense of urgency to him. The governor mentioned that there was a lot of revenue to be gleaned from closing tax loopholes. A few days earlier, Legislative Analyst Elizabeth G. Hill had recommended closing or narrowing a dozen loopholes and generating $2.7 billion a year.

It was clear to Schwarzenegger that, for political and practical reasons, the deficit hole could not be filled with spending cuts alone. He decided to support loophole closings. But advisors were surprised when the governor spontaneously popped out with the idea the next morning during an audience Q&A; after addressing Town Hall Los Angeles.

“I’m a big believer,” he said, “that when we have a financial crisis like this that we all should chip in. And this is why I totally agree with the legislative analyst’s office when she says that we should look at tax loopholes. . . .

“I think that we should go after those tax loopholes because we would need the extra $2.5 billion. This is $2.5 billion we can give straight to education. I am totally for that . . . because everyone has to give something.”

Outside, talking to reporters, Schwarzenegger backed off slightly, but not substantively. “I’m not for the recommendations [Hill] made, necessarily,” he said. “I just think that Democrats and Republicans should work together on this.” The idea, he said, is to “close some of those tax loopholes.”

Republican lawmakers consider closing loopholes the same as raising taxes. And they’re right, of course. Loopholes are plugged to increase tax revenue. That fact can’t be disguised with spin words like “loopholes” or “tax expenditures.”

On Tuesday, Schwarzenegger told reporters that lawmakers shouldn’t get hung up on semantics.

“We should not get caught up in what something is called,” he said. “That doesn’t bring anyone any healthcare. It doesn’t bring any education. . . . What we need to do is fix problems. Let’s just put everything on the table and not debate over the definitions.”

Democratic leaders should consider it an invitation to offer Schwarzenegger a tax proposal. The governor finally agrees with them, it seems, that the state does have a revenue problem -- not simply a spending problem.

But Democrats are splintered.

Senate President Pro Tem Don Perata (D-Oakland) wants to fashion a budget proposal through the traditional legislative process, with public hearings, and avoid closed-door negotiations between leaders and the governor. That’s fine. But this is ominous: He’s vowing “the fight of a lifetime,” threatening to block budget passage all summer if necessary to protect school funding, insisting loophole-closing isn’t enough and talking up a sales tax increase.

Assembly Speaker Fabian Nunez (D-Los Angeles) is more attuned to Schwarzenegger.

“If other Democrats want to beat up the governor, I respect their views,” he says. “But I think the governor is a good man and doesn’t want to make cuts any more than I do. Now it’s up to us to show him a road map to a balanced budget.”

Nunez isn’t ready to support a general tax increase, like on sales. That should be a “last resort,” he says. For now, he advocates closing business loopholes. For example, he’d impose an oil severance tax -- California is the only state without one, he says -- and raise $1 billion.

But the speaker opposes Hill’s biggest recommendation: dramatically reducing the dependent income tax credit and gaining $1.3 billion. “That hits working-class families.”

Republicans still oppose a tax hike by any definition.

Do they really think that the general fund budget -- currently at $103 billion -- can be balanced with only spending cuts? “That’s our goal,” says Senate GOP Leader Dick Ackerman of Irvine.

“Is it going to happen? I can’t tell you that.”

A slight waver? Maybe he’s peeking outside the budget blinders.

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george.skelton@latimes.com