Gov. Hints of Possible Hike in Taxes

SACRAMENTO —  Facing widespread opposition to his special election, Gov. Arnold Schwarzenegger said Friday that if voters reject a proposed spending restraint on the November ballot, he might be forced to raise taxes.

Schwarzenegger previewed a possible campaign theme in a morning radio interview, predicting that new taxes might be the only way to stave off future deficits if voters defeat Proposition 76, dubbed the Live Within Our Means Act.

Asked on KTKZ-AM (1380) in Sacramento what he might do if the spending control is beaten, Schwarzenegger said, “Then we have to look at raising taxes, because this is the only option we have, in order to create the money.

“And this is why I tell people vote yes on Proposition 76 and make sure that we do everything that we can to pass this proposition so that we force our legislators, once and for all, to live within their means and not to continue spending money and to keep making promises to people that they can’t keep.”

Though some analysts interpreted the governor’s remarks as an attempt to build a case for the spending initiative, the most immediate result was to rankle conservatives.

Prominent Republicans warned that if the governor were to embrace a tax increase, he might alienate conservative voters who have remained loyal to him even as his support elsewhere has dwindled.

“If he actually commits as a last resort that he’ll raise taxes, then his Republican base -- which is basically what’s left right now in terms of loyal support -- will erode,” said Ken Khachigian, a board member of the California Chamber of Commerce, a reservoir of support for the governor.

State Sen. John Campbell (R-Irvine) took issue with the governor’s analysis, saying that whether Proposition 76 succeeds or fails, raising taxes “is not the solution.”

“I see ‘Live Within Our Means as giving the governor tools to balance the budget without controlling spending,” Campbell added. “That’s what it does. Without Prop. 76, we can still control spending. It’s just that the governor won’t have as many tools to work with the spendthrift Legislature.”

Proposition 76, proponents contend, is a vehicle to constrain the state budget. It would limit state spending increases to the average growth in revenue for the previous three years. It would also give the governor discretion to make midyear budget cuts during fiscal crises.

Khachigian, a strategist for President Reagan, said the governor needed to retract his statement.

“I don’t think he wants it left out there that he would raise taxes, even as a last resort,” he said.

There was no backtracking from Schwarzenegger’s office. A press aide, Jen Scoggins, said: “There’s nothing more to add.”

Schwarzenegger’s comments came as a new statewide poll showed little appetite for the Nov. 8 special election, which the governor says is crucial to his “year of reform” agenda.

A Field Poll released this week showed that 57% of registered voters wanted to see the election canceled. At the same time, the governor’s approval rating stands at 36%, a new Field Poll low and a level of voter disillusionment that complicates his campaign to pass three ballot initiatives.

Apart from the spending proposal, Schwarzenegger is also endorsing measures that would compel teachers to wait longer before receiving tenure and empower a panel of retired judges to draw new legislative and congressional voting districts.

Schwarzenegger has flirted before with the possibility of raising taxes -- always a sensitive subject among Republicans in California. Schwarzenegger’s victory in the 2003 recall campaign was driven in part by voter outrage over former Gov. Gray Davis’ $4-billion increase in vehicle license fees.

Last year, at a time when the state was facing a $14-billion budget shortfall, the governor said in an interview that his intention to keep taxes level might be “wishful thinking.” In the end, however, he avoided a tax hike.

Pollsters differed as to the strategy behind Schwarzenegger’s latest remark.

Mark Baldassare, survey director for the Public Policy Institute of California, said that Schwarzenegger’s aim might be to rally support for the spending measure by persuading fiscal conservatives across the spectrum that the alternative is an unpalatable one -- a tax hike.

“The governor may be seeking to attract more fiscally conservative voters across party lines for his measure, since many Californians oppose raising taxes,” he said. “And at the same time he is reminding people of the structural deficit which the governor and the Legislature haven’t been able to bring into balance.”

Yet Mark DiCamillo, director of the Field Poll, said that if that is the governor’s strategy, it is not “hitting the target.” He must win the backing of Democrats and independents if he hopes to pass Proposition 76, DiCamillo said. And that chunk of the electorate may not be as wary of a tax increase as Republicans.

“He might frighten more Republicans into voting for the initiative,” DiCamillo said. “But he needs to come up with arguments that will have a powerful appeal to Democrats. And that doesn’t seem like one.”

With Schwarzenegger there may be another possibility: that he misspoke or that he didn’t necessarily mean what he said. That has happened before.

In April, he said that to combat illegal immigration the U.S. needed to “close the borders.” An aide quickly clarified that statement, assuring reporters that the governor meant the United States needed to better “secure” the border with Mexico.

State Sen. Tom McClintock (R-Thousand Oaks) dismissed the governor’s comments Friday as mere “musings” with little significance.

“I’ve learned not to confuse the governor’s musings with policy announcements,” McClintock said. “You might recall similar comments he made last year. There was a little tempest, and nothing happened.”