At last, gov. gets realistic on taxes

FROM SACRAMENTO —  He finally said it. I saw him. Heard his words.

Gov. Arnold Schwarzenegger acknowledged that Sacramento’s problem is not overspending. The problem is that the state isn’t collecting enough taxes.

“When we talk about living within our means,” the governor told a Capitol news conference last week, “we say, many times, that we have a spending problem, not a revenue problem. It just has happened this year that it actually has switched. . . .

“It is now a revenue problem rather than a spending problem, because our spending in this state has not increased now for years. We have been very steady and we have been very fiscally responsible. . . . It’s just that the revenues have dropped so rapidly.”

Hallelujah!

Schwarzenegger began this year reciting the simplistic “spending problem” mantra chanted by fellow Republicans. He’s ending it sounding like a realist, if not a Democrat.

Actually, Sacramento has been suffering a revenue problem for a long time, at least since the first day Schwarzenegger took office in 2003 and immediately dug the state deeper into recalled Gov. Gray Davis’ deficit hole.

The showboating Schwarzenegger had campaigned gleefully against Democrat Davis’ raising of the vehicle license fee -- the so-called car tax -- and had even used a wrecking ball to smash an old jalopy in one stunt. It was great TV. “Outrageous,” Schwarzenegger called the tax.

So in his first act as governor, Schwarzenegger sharply whacked the license fee. The budget still hasn’t healed.

All the fee’s revenue had gone to local governments. Schwarzenegger generously agreed to “backfill” their loss out of the state general fund. And five years later, that fee cut amounts to a $6-billion annual state spending program.

Schwarzenegger initially covered the cost and “balanced” the budget by talking voters into borrowing $15 billion. All that money is gone and we’re still paying off the loan.

Last week, while calling a special legislative session, the governor projected red ink for the current fiscal year at $11.2 billion. Without a fix, there’ll be an additional $13 billion the next fiscal year.

As a first step, he proposed $4.7 billion in tax hikes and $4.5 billion in spending cuts -- on top of the nearly $11.4 billion in reductions already part of the current budget, according to administration figures.

Credit Schwarzenegger with at last facing the problem: a severe revenue shortage.

The long-range solution is to modernize the antiquated tax code that relies too heavily on retail sales and also leans too much on the fortunes of rich people. When their stock portfolios and capital gains earnings tank, so do Sacramento’s tax revenues.

The governor and Assembly Speaker Karen Bass (D-Los Angeles) are creating a commission to recommend a major tax restructuring.

Meanwhile, Schwarzenegger last week jumped ahead of the commission by recommending a landmark extension of the sales tax to some services: vehicle, furniture and appliance repairs; veterinarian care; amusement parks, sporting events and golf rounds.

There’ll be no taxing of movie tickets by the former screen hero, however.

The governor also proposed an oil severance tax -- a tax on virtually every barrel pumped from the ground or ocean in California. We’re the only major oil-producing state without such a tax.

But another logical tax causes Schwarzenegger to turn white whenever it’s mentioned. That’s his old campaign foil, the vehicle license fee.

“That would hurt the economy too much,” he told reporters when asked about it. “We have a severe drop in [sales of] cars right now . . . and the car companies and everyone are really hurting. . . . I don’t think that we should go there.”

But if the governor was all that worried about car sales, he wouldn’t be proposing a sales-tax increase of 1 1/2 cents on the dollar. It would add $450 to the cost of a $30,000 vehicle.

That steep a sales-tax hike, even if temporary as he proposes, seems a bit much. A simple penny-on-the-dollar bump might go down better.

It’s all moot, however, as long as Republican legislators rigidly refuse to even discuss a possible tax increase. At least a few Republican votes will be needed to obtain the required two-thirds majority.

The two GOP leaders -- Sen. Dave Cogdill of Modesto and Assemblyman Mike Villines of Clovis -- issued a joint statement declaring that they were “very disappointed” in the governor. Nothing new there. They added: “Raising taxes is the worst thing we could do right now. It will devastate an economy that is hanging on a thread. . . .

“Instead of raising taxes so the Legislature can spend even more on bigger government, Republicans believe that our priority in the special session should be putting California jobs first and encouraging more companies to invest in our state.”

Call me Pollyanna, but I see a faint ray of potential compromise there. It’s conceivable some Republicans could be lured into supporting tax hikes in exchange for business-friendly legislation, such as allowing more flexible work rules and streamlining environmental regulation, as the governor has suggested.

The pot could be sweetened by authorizing the sale of surplus state property and allowing offshore oil drilling from existing platforms. Both could be moneymakers.

The Democrats’ special-interest constituencies -- labor and environmentalists -- would find things to fight about. But there’s no faction, on the left or right, that’s going to like what the governor and Legislature ultimately agree to -- if, indeed, they’re capable.

The governor also proposed some ugly spending cuts. He called for slashing education by $2.5 billion in mid-school year. He wants to significantly pare grants for the aged, blind and disabled, plus welfare moms. He’d eliminate such Medi-Cal services as adult dental care, hearing aids, speech therapy, vision care and podiatry.

Schwarzenegger badly needs to do two things: Coerce, cajole or bribe a few Republicans into voting for a tax increase. And swallow his pride and raise the car tax at least halfway back to where it was. He could pick up $3 billion and still claim a net cut under his regime.

Everybody needs to give a little. No, a lot.

A bigger problem -- even than revenue -- is a shortage of pragmatism.

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george.skelton@latimes.com