Don’t Tempt a Repeat of Prop.

The sailing ships on the great seal of California stand for commerce. Today those symbolic ships are plying the waters at full sail, plowing up waves of tax money for the state during these boom times. In Sacramento, the debate is about what to do with the unexpected revenue.

Gov. Pete Wilson is pushing a $1 billion personal income tax cut plan in budget negotiations with the leadership of the Assembly and Senate. His proposal would increase the current tax bracket ceilings by 10% and provide a tax cut with the largest percentage cut going to middle-class taxpayers.

As with other tax cut proposals, arguments are presented on why it is, or is not, a good thing. Senate president pro tem Bill Lockyer charges Wilson’s tax cut will take needed money from the schools. Advocates for state workers want to be sure they have the money for the raises they were denied during the recession; local governments want to reclaim money shifted to the state during the hard years of the early 1990s. Taxpayers say they chipped in during those tough times, too, suffering huge tax increases, and now they want some tax reductions.

I side with the taxpayers. But, cutting taxes now is the right thing to do not only for the usual arguments, but also because of history.

On this page in March 1991, I warned that if the governor and Legislature rushed to embrace new taxes to close the yawning budget deficit of that time, they best be prepared to reduce those taxes after the crisis had passed or steady themselves for another tax revolt.

My commentary six years ago traced the effects of the tax increases signed into law by Gov. Ronald Reagan in the late 1960s. Like Gov. Wilson after him, Reagan found a big hole in his budget as a newly elected, first-term governor. His solution was a multifaceted tax increase, with the income tax raise as the centerpiece of the plan.

With the tax spigot turned on, Reagan, himself, could not turn it off. His measure on the 1973 special election ballot to limit taxes was defeated. Tax revenue continued pouring into the state treasury after the budget crisis was past. In fact, for the five years between the defeat of the Reagan initiative to Proposition 13’s tax revolt in 1978, state spending increased an amazing 12.5% a year; state revenues went up an incredible 18.4% a year. It was coming in so fast, the government couldn’t spend it all.

The building surplus was a major issue in the Proposition 13 campaign. Voters were convinced government was too fat, and they voted overwhelmingly for Proposition 13.

Wilson had some sense of the history of the Reagan years when he insisted as part of the tax increase package of 1991 that the high-end personal income tax rates of 10% and 11% be dropped to their former rate of 9.3% after a few years. They were dropped on schedule, following the expected legislative political tussling to keep them alive. Then Proposition 217 immediately qualified for the ballot to restore the 11% rate, but was defeated.

The lowered high-end tax rates coincided with this year’s skyrocketing tax collections, a point that should not be lost on our lawmakers.

California’s new economic activity, coupled with the remaining tax increases passed to deal with the recession-fueled financial crisis, are now piling up dollars at a healthy clip, just like the period after the Reagan tax increases.

Will history repeat itself? Well, that depends on what history the budget writers follow.

There is another model from California’s past that this Legislature can follow to avoid a tax revolt. The tax structure set up to bring in desperately needed revenue to fund Depression-era budgets started churning out big surpluses during World War II. Debate on how to use the surpluses mirrored some of the arguments today, such as subventions to local governments. However, Gov. Earl Warren decided it would be better to cut taxes. A number of taxes were cut, including the personal income tax.

It’s time to cut the income tax again.

Refusing to include income tax cuts in the current budget could pave the road for the next tax revolt.