The Orange County Register

Tax reform: Top of the 2000 agenda

Tax reform seems be mid-range on most political agendas - either despite of or because of a booming economy.

Indeed, the last major wave of comprehensive tax reform, beginning with California's Proposition 13 in 1978 and ending with President Reagan's 1981 tax cuts, coincided with the end of the Nixon-Carter stagflation of the 1970s. Citizens were upset and demanded change as their spending power contracted.

We can't precisely explain why citizens today aren't more outspoken about seeking a return of some or all of the tax dollars they have overpaid to the state and federal governments, but we can be vigilant about pointing out the ever-rising level of taxation.

We will also hold civic officials accountable for how they spend surplus funds. For those reasons, several key areas of taxation are on our Editorial Agenda 2000.

Prop. 10 and its repeal: On the March 7 ballot, Proposition 28 would repeal the $700 million state cigarette tax passed in 1998 under Proposition 10. Proceeds are tied to early childhood development programs. Despite the goodness of the cause, this tax and its disbursement are troubling on several counts. High-tax forces - led by Prop. 10 sponsor Rob Reiner, who now heads the state commission - are rallying to defend Prop. 10.

Proposition 26: Also on the March 7 ballot, this proposition would reduce to a simple majority the current two-thirds vote of the people required to pass local school bond measures. We have already gone on record vigorously opposing this proposition for a variety of reasons. We will present a detailed essay analyzing the debate in our Sunday Commentary section on February 13.

Car tax: Outgoing Assembly Speaker Antonio Villaraigosa is trying to freeze the car tax cut passed in 1998 at 35 percent, canceling the remaining additional 32.5 percent scheduled to go into effect over the next four years. We will work hard to keep this modest tax reduction in place.

At the state level, the California Taxpayers Association told us that, for the 1995-96 fiscal year, the last for which statistics are available, state revenue amounted to 16 percent of the California economy, nearly as much as the 16.2 percent taken before Prop. 13 was passed. Extrapolating to the present, Cal-Tax vice president Stephen Kroes told us, "The percentage has gone up even more since 1996 because California has the most progressive tax brackets in the country. When the economy is good, people are pushed into higher tax brackets."

At the federal level, taxes now devour 21 percent of the national income, the highest level ever in peacetime. That 21 percent level has held steady for several years, mainly because Congress and President Clinton have paid for higher domestic spending by cutting military spending. But as the Republican presidential candidates promise to spend more on defense, the easy way to spend more on domestic programs could be over. The attitude of many toward taxes today resembles that during the end of the previous long boom times, in the late 1960s and late 1980s. People seem to think the good times can last forever and governments can go on perpetual spending sprees.

But cautionary signs are showing up.

Japan's economy, in the doldrums for most of the American boom of the 1990s, now is recovering sharply, thanks in part to tax cuts last year. Japan remains America's major global competitor in electronics and manufacturing.

And although California refuses to give back to taxpayers much of the budget surpluses -$ 4.4 billion in fiscal 1999 and something approaching that in fiscal 2000 - other states understand that the people who earn the money deserve to get back at least a fair chunk of the surplus.

In 2000, California taxes will drop just 0.4 percent, one-third of the 1.3 percent average tax cuts of all 50 states.

Colorado is cutting its taxes a whopping 15.8 percent. Even bigger is the 18.1 percent tax cut in Minnesota. Although Arizona is cutting taxes just 0.5 percent this year, since 1992 it has cut taxes 14 percent, compared to a 13 percent cumulative tax increase in California during the same period.

So you see why we're hot on this topic: It's the citizens' money and they've overpaid; tight rein on taxes is the chief taxpayer lever against bloated, intrusive government; and, citizens shouldn't let a high-flying economy hypnotize them into thinking a high-tax environment is a neutral condition for business.

With the ability of Internet companies easily to move the new locations, America, and especially California, might get an unhappy surprise at the first slip into a downturn.

For all those reasons, we believe attention to taxes and tax cuts needs to be moved from the mid-range of importance on policy scorecards to the top this year.