NOT ALL government spending decisions are made here in Washington. About 45 percent of all the public spending in the United States is done by state and local governments, and more than one-tenth of that is spent in the president's home state of California. In the bad old days when Candidate Reagan was decrying $30 billion federal deficits, some of their evil effects were offset by the states, whose budget balances amounted to 9 percent of their revenues. Those days--need we say it?--are gone.
Some of the states, notably California, have been threatening to run deficits themselves. California's Gov. George Deukmejian, like his longtime political ally Ronald Reagan, proclaims himself totally opposed to tax increases. In fights with the Democratic state legislature, he appeared willing to accept a deficit, as the president has nationally, rather than allow a rise in taxes. Now Mr. Deukmejian, by applying his line-item veto to $1.1 billion in spending, says he has put the budget of the nation's largest state into balance without raising taxes.
Or has he? He approved $450 million of what some people in the Reagan administration call revenue enhancements, through changes in state income tax and motor vehicle rules. He claims $191 million in savings by cancelling payments to a teachers' pension fund and $230 million by requiring community college fees, which the legislature may not authorize. If these dubious cuts don't stick, or if California's revenues prove less than expected, the sales tax will be raised from 6 to 7 percent by an automatic trigger law reminiscent of the contingent federal tax increase President Reagan has proposed. In any case, localities are likely to raise taxes and fees to compensate for cuts in state aid.
Mr. Deukmejian may be bailed out by a surge in revenues generated by the buoyant economy that Mr. Reagan's unintentionally Keynesian policy of large deficits has finally produced. Despite his apparent success in holding taxes down, the ultimate effect of his policies, like those of other big-state governors, may very well be to raise taxes and to eliminate the state and local surpluses that used to offset the federal deficit. Certainly that's the larger national trend: lower federal taxes have been accompanied by higher state and local taxes, as politicianse to pay for services the voters demand.