Daniel Weintraub: Governor's new ritual -- tinker with the sales tax

By Daniel Weintraub
Sacramento Bee Capitol Alert
December 31, 2000

With hangovers, college football and resolutions already entrenched as New Year's Day traditions, Gov. Gray Davis seems bent on beginning a new annual ritual: changing the sales tax rate. At least for the next couple of years.

The sales tax will dip by a quarter-cent on Monday. Twelve months from now, barring a change in law, it will go back up again.

If this seems like a strange way to run a treasury, it is.

The now-you-see-it, now-you-don't tax cut is a vestige of an earlier time. Former Gov. Pete Wilson and state lawmakers, faced with an ugly recession and a crushing deficit in 1991, passed the biggest tax increase in state history. To soften the political blow, they included a provision to automatically suspend one little piece of their tax hike if the state ever again was flush with money.

Well now the state is flush, big time. Expecting the second straight year of surpluses that will exceed 4 percent of the state's general fund, Davis announced in October that the sales tax trigger would be pulled and the levy would drop by a quarter cent on the dollar Jan. 1.

The change will save California taxpayers about $1 billion. That sounds like a lot of money. But unless you are a very big business or a very big spender, you won't get much of it. The savings on a $20,000 car is $50. On a $100 dinner: a quarter. For a family making $50,000, maybe $40 for the entire year.

The technicians who have been out reprogramming cash registers so that stores are ready to calculate the correct tax rate earn more on each call than most of us will see by the time they're ready to adjust the registers again next December.

Davis says he has no choice in this matter. The law required the tax to go down, he says, and will require it to go back up again. But the governor is too modest. He seems to have forgotten that, unlike the rest of us, he actually has the power to change state law. Working with the Legislature, he could have done many things to avoid putting the sales tax on a yo-yo string.

He could, for example, make the tax cut permanent. With the state looking at a $10 billion surplus at the end of the current fiscal year in June, it probably wouldn't be too difficult for budget writers to lose the billion dollars generated by that quarter-cent and never see it again.

Or he could have cut a different tax. The sales tax reduction is so small that almost no one will notice it. How about a $200 income tax cut for the 5 million taxpayers with the lowest earnings? That's just one example of a different tax cut that would have cost the state treasury the same $1 billion. But it's one that might have been more meaningful to those who got the break.

Davis could also have used the occasion to reexamine the entire tax structure, an exercise that is long overdue. Economic changes and business tax cuts over the past decade have reduced the amount of tax paid by corporations while increasing the share paid by individuals. Rather than simply going with the flow, the governor could consider whether it is time for a change to counter those trends.

On the other hand, if Davis didn't think a tax cut was needed at the moment, plenty of people could have given him ideas for ways to spend the money. The $1 billion would mean about $200 per student in the public schools, enough to buy at least a couple of computers for every classroom in the state.

It might also have been used to expand health insurance for the working poor or build new roads or buy land to provide habitat for some endangered critter.

Then there is local government. The same recession that spawned the sales tax hike in the early 1990s also prompted lawmakers to shift billions of dollars in property tax revenue from cities and counties to help the state balance its budget.

Some of that money has since been returned, but the locals are still hurting. Davis could have made them whole, then let local officials and their constituents decide whether to spend the money or return it to taxpayers. Without the property tax grab, after all, the state wouldn't even be in the position to cut the sales tax today.

The point is that Davis is being less than truthful when he says he has no choice but to lower the sales tax and then raise it again. If the governor has studied the issue and concluded that this is the best course for the state, he ought to say so.

But to throw up his hands and pretend he's helpless is not only laughable, it's an insult to the intelligence of those who know better.

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