Social Contract

Mason Gaffney: California's Governor-Elect

For better or worse, California has recalled its governor and elected Arnold Schwarzenegger (A.S.) to replace him. A.S. has revealed no specifics of how he will stanch our deficit. He campaigned on generalities: he is against taxes, against waste in government, against measures to rein in vehicle use, and nostalgic about the good old days when Governor Pat Brown was spending heavily on roads and water projects. No one seems sure how he will connect the dots. After his first visit to Sacto last week, he seemed not sure, either.

His choice of advisors, however, tells us A.S. will repeat Pete Wilson's performance from the early 1990s. Chief of Staff Patricia Clarey is a good soldier from Wilson's old staff; Auditor Donna Arduin is from Jeb Bush's Florida. The gurus who set the doctrinal tone give the clearest hints: they are neo-classical economists of deepest dye. These are advisors George Shultz and Michael Boskin from the Hoover Institution. Economics, to them, is a set of dismal choices. California's choice is to cut public services, or lose business and jobs. That is what they told Wilson in 1994. All taxes are the same, always "burdens," always driving away "business."

In 1994, Wilson appointed Shultz and Boskin heads of his "Task Force on California Tax Reform and Reduction." They "urged" a 15% cut in income taxes, personal and corporate. Biggest cuts would be for corporations, and the highest brackets. Boskin said "savings to business are crucial to the State's recovery." Shultz said it will "spur job creation," and "make California more competitive." Wilson endorsed the report, to make California "a friendlier place for taxpayers." Other usual suspects like The State Chamber of Commerce jumped right on board, to "stimulate the economy." It could have been a dress rehearsal for G.W. Bush in Washington.

They promised it would increase revenues, on the Laffer-curve hypothesis. Failing that, they would cut "waste in government," that perpetual whipping boy. On the last matter, they stifled two important points.

• First, in 1978 critics of Prop. 13 asked Howard Jarvis how the public schools and local governments could survive without the property tax. "Let the damn s.o.b's in Sacramento figure it out, that's what you pay the b…..ds for," came the answer in Jarvis-speak. They figured it out, all right: they raised sales and income and business taxes, to funnel funds to localities and schools. Naturally, state taxes rose without any visible rise in state services. Now the Jarvisites, including A.S.'s advisor Jon Coupal, cite this as waste in Sacramento.
• Second, most taxes come out of the social surplus, hence sooner or later out of land rents. Most landowners, wrote Adam Smith, are too "indolent" to be fully aware of that, so they oppose land taxes. Later, as the truth seeps in, they come to oppose all taxes. Wasteful public spending is bad, but the part not wasted is spent in the public interest. Jarvis told us that fire-fighters are just hogs like teachers, with their "noses in the public trough," but today, like Kipling's Tommy Atkins, "it's savior of 'is country when the guns begin to shoot." Today, no one even expects that any part of the rents taken privately should be spent in the public interest. Luxurious waste by private rent-takers is seen as a natural right, free of social obligations. Thus far have we come from the feudal coupling of social obligations with private rents. Add to this the notion that widows and other poor people own all the land, so any tax is regressive.