When California faced a major budget crisis in the early 1990s, thanks to what was then the worst recession since the Great Depression, a Republican governor — Pete Wilson — and the Legislature enacted a big, albeit temporary, increase in state taxes.
Despite the boost in sales and income taxes, state revenue continued to decline as the recession deepened, touching off years of political debate about causes and effects.
Those on the right contended that by increasing taxes, Wilson and the Legislature depressed economic activity, thus causing a further decline in revenue. Those on the left argued that if tax rates had not been increased, revenue would have declined even further due to the recession.Wilson later recanted, saying he regretted twisting arms of Republicans to vote for the tax increase because revenue did not jump.
History is repeating itself.
An even-worse recession is buffeting California now. As state revenue plummeted last year, Republican Gov. Arnold Schwarzenegger cajoled and bullied a few Republicans into voting for billions of dollars in temporary tax increases.
“Anyone that runs around, I think, and says that [balancing the budget] can be done without raising taxes, I think has not really looked at it carefully,” Schwarzenegger said.
The 2009 tax hikes turned out to be more temporary than the governor and legislators wanted, because voters limited their lifespan a few months later by rejecting a series of ballot measures.
The increases will begin to expire in a few months, but they were in effect for the just-ended 2009-10 fiscal year. And as the overall economy continued to fade, their enactment did not generate a big net revenue increase, thus emulating what happened with Wilson’s tax hike.
The additional income, sales and vehicle taxes were expected to produce around $8 billion a year. As state officials close the books on the 2009-10 fiscal year, however, revenue remains flat.
Overall, Controller John Chiang reported, the state received $86.6 billion in revenue during the year, about $1.4 billion more than the previous year — and $10 billion less than 2007-08.
Personal income taxes, the largest single generator of revenue, were barely $1 billion higher than the previous year.
The numbers will touch off a new version of the old debate. Did raising taxes retard economic recovery, thus erasing the expected revenue gain? Not likely. Did it protect some public services? More likely. Or, was it a little of both? Possibly.
Schwarzenegger seems to be emulating his one-time mentor Wilson. This year, he’s as adamant about not raising taxes again as he was last year about increasing them.
Dan Walters’ Sacramento Bee columns are syndicated by Scripps Howard News Service.