This article is from Cal-Tax Digest, published
by the California Taxpayers' Association.
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He has not admonished California taxpayers to "read my lips." He has not taken a "never" pledge.

But Governor Gray Davis has poured concrete around his feet on the question of higher taxes, at least for now, in the existing economic climate.

Even a political columnist's question on taxes seemed to annoy him, bringing a finger-wagging response that turned into a bristling lecture.

Let's set the scene. It is April 8, in the Capitol news conference room, where, after detailing accomplishments of his first 100 days in office, the governor took questions. The writer noted that the governor had just said he was making the state's infrastructure needs a front-burner, top-priority issue. How, then, could the governor remove new taxes from the list of potential solutions to the multibillion-dollar problem of financing growing needs for roads and other public works projects?

"Because I believe to my core that the job of governor is to work within the resources that people provide," Mr. Davis replied. "They don't expect you to solve every problem on the planet Earth. They don't expect you to come back and complain, 'Oh, you elected me governor but you didn't give me all the money I wanted.' B.S.! You do the best job you can with the resources you have; that's what they expect of you and that's what I am going to do."

But, the columnist asserted, the state's resources (tax revenues) have been shrinking.

Governor Davis interjected: "They haven't been shrinking, they've been growing."

Interrupting the columnist again, the governor said, "We had a $4.2 billion surplus last year. We're running about $200 million ahead of (revenue) projections this year; we'll see what the May revise brings. We are in record prosperity. Now is not the time to be talking about raising taxes."

His voice growing even more stern, he continued, "And I resent this sort of Sacramento elitism; this notion that we know better up here, and we should just raise taxes even in the midst of buoyant prosperity."

Taking a different tack, another writer asked about 1999 tax-cutting prospects.

The governor left the door open for such a possibility.

"We'll see what the May revise provides. I said in my campaign that I do believe in targeted tax cuts. I do believe in reducing the capital gains (tax) if you invest in a company for more than five years.

"You look at California's economy. It is basically information based; our strength is intellectual innovation; biotechnology is as good example as we have. There are only nine companies that have shown a profit of the hundreds of biotechnological companies that we have. So people are encouraged to keep their money in a company for at least five years. That gives entrepreneurs and struggling companies opportunity to test out ideas and come up with marketable products and produce a profit.

"So we have a different kind of economy than the traditional smokestack economy. We are great at producing ideas. But we have to attract capital to grow those ideas into businesses and jobs. And the reason I say five years, is when I was on PERS and STRS (boards that oversee state public employees' and teachers' pension funds), our average length of investment was nine years. While companies may moan and groan about our shareholder rights philosophy, they were very appreciative that we kept our money there."

Governor Gray Davis

Reporters pressed him for a ranking of tax cuts among priorities.

"My top three priorities for use of any additional money provided in the May revise are further assistance to the schools, to put more money into the reserve and to allow additional pay raises for those (state employees) who went four years without one. Now we'll just see what May brings us.

So, the reporter asked, cutting taxes is not a top-three priority?

The governor replied, "I know it is not one of my top three priorities. But, remember, I know you guys think this has gone away. I inherited a $2.3 billion shortfall because people spent money last year like there was no tomorrow. We are still growing. We'll see in May if it is at a faster rate than was assumed when people signed the budget last year."

He said he must "accommodate all the spending (approved by last year's Legislature and then-Governor Pete Wilson) in my plans. Now the good news is if we have a buoyant economy next year, we'll have gotten over the hump this year, and we can look at tax cuts. If the May revise is spectacular, like it was for Wilson, the $4.2 billion (surplus) in May of 1998, then we'll have options that will include tax cuts.

Remember, when (Wilson) produced his budget (January 1998) he had only a $129 million surplus in January; mine had about $400 million."

Then, Governor Davis added, with the April 1998 income tax revenues, pumped up by capital gains, the "the sky opened up and $4.2 billion landed in his lap ... That got everyone to think this is never going to change and they just started spending money like drunken sailors."

It doesn't take a lip-reader to conclude that Governor Davis is saying "no" to the tax-and-spend crowd.

- Ron Roach is director of communications at Cal-Tax and editor of Cal-Tax Digest.