Opening shots in the campaign over the newest tax-cut referendum show not only that the tax revolt is alive and well in California but that the real stake is redistribution of income.
Contrary to a view widely held among politicians that the revolt subsided even here at home after tax crusader Howard Jarvis' deep property-tax cut (Proposition 13 was adopted by California's voters in 1978, an even more radical cut in state income taxes proposed by Jarvis (Proposition 9) is overwhelmingly favored to pass June 3. The consensus is that it is leading, 2-1, statewide.
Mickey Kantor, a skilled Democratic politician who heads the anti-tax-cut campaign, was well aware of prevailing sentiment as he approached his first televised confrontation with Jarvis recently. Instead of predicting ruin for state government services (the anti-Jarvis weapon used in 1978), Kantor that night took a different tack: Proposition 9 -- called Jarvis II, or "Jaws II" by its foes -- is biased toward the rich.
While cutting state income-tax rates in half, the relief would be unevenly distributed: 5 percent of all taxpayers would get 33 percent of the relief; 80 percent would get only 40 percent. For that reason, Kantor told us, "I would be opposing this even if it meant no reduction in government services."
With that, he uncovered the secret of what lies behind the passion of tax-cut foes. It is less a question of undermining government programs because of reduced revenue; it is, rather, the threat to undermine redistribution of income through progressive taxation by narrowing the gap between top and bottom rates. Under Jarvis II, California's top-bracket rate of 11 percent (put that high, ironically, by Gov. Ronald Reagan's budget-balancing efforts) would come down to 5.5 percent. That is the real bite of "Jaws II."
There persists scare talk of greatly diminished government services in the wake of the new cut, even though no such crisis followed the 1978 property-tax reduction. Conservative economist Milton Friedman, who supported Jarvis I, opposes Jarvis II out of fear the lost revenue will be picked up through new taxes on business (which, in fact, would require an unobtainable two-thirds vote of the legislature).
Friedman rejects the theories of a younger conservative economist, Arthur Laffer, who has argued that lower tax rates invariably generate more revenue, as they did here after Jarvis I. Jarvis himself is a confirmed Lafferite. How much revenue loss would result from his proposition? "I don't really think it would be any," Jarvis told us. Even opponent Kantor concedes the revenue loss would be limited "if the economy keeps booming" (of which he personally is skeptical).
Booming economy or not, Kantor is a good enough politician to know that gloom-and-doom prophecies lost their credibility when rising prosperity followed Jarvis I. But in switching the argument to distribution of the tax burden, Kantor runs up against the classic political problem for liberals: taxpayers care more about how much they pay than about how little their rich cousin pays.
Preliminary surveys show substantial support for Jarvis II -- far more than for Jarvis I -- in the brown and black communities. That is one reason even many Democratic politicians are reluctant to do battle now as they did then.
Jarvis actually thought that Gov. Edmund G. Brown Jr., a dedicated foe of Jarvis I before he saw it would win, would endorse Jarvis II. On a recent visit to California away from the presidential campaign trail, Brown maintained his liberal credentials by announcing opposition to the new tax cut, but only in perfunctory fashion.
Some politicians burned by the issue in 1978 have changed sides. Mayor Pete Wilson of San Diego, a highly regarded moderate Republican who self-destructed his 1978 primary campaign for governor by opposing Jarvis I, has endorsed Jarvis II.
"If I could have known then what the actual effect of Proposition 13 would have been," Wilson told us, "I would have supported it." San Diego city police services have increased 27 percent since then, though some belt-tightening elsewhere has been required. With tax-cut testimonials such as that, foes of Jarvis II have switched to talking about unjust redistribution of the tax burden.
But these foes do not have a point when they say diminished state tax payments will mean higher federal taxes because of reduced deductions, somewhat diminishing the Laffer effect here. This state's share of the $60 billion in new taxes put forth by President Carter's new budget (Social Security, windfall profits and others) also files down the sharp edges of "Jaws II." The tax revolt, waged with vigor by California's populistic referendum system, is being largely ignored by elected representatives in Washington.