U.S. tax cut chickens come home to roost

Press, 28 October 1981, Page 24

U.S. tax cut chickens come home to roost

By

JOHN HUTCHISON

in San Francisco

A few years ago, the state of California had surpluses in its treasury, of thousands of millions of dollars. Today it is in a near-desperate effort to avoid bankruptcy. To the north, the states of Washington and Oregon are in similar crises. The causes differ in detail, but they stem from the fact that when the socalled “irate taxpayers" revolted in the mid-19705, they overdid it. The wave of reform they rode with such triumph is carrying many of them onto reefs they overlooked. Proposition 13, which cut property rates in California to about half in 1979 and sparked a national taxpayer uprising, reduced California’s income severely. For two years, the state pumped its huge reserves into services administered by local authorities, to sustain welfare, public safety, parks, libraries and scores of other, activities historically taken for granted. But the reduction in revenue from rates came as the economy flattened out with resul-

tant slowing in sales and income taxes. The pumps have run dry. State revenue sagged while inflation ran up the costs of government. Now there is a new strain: the Reagan Administration’s curtailment of federal funds tor state and local programmes has left many of them gasping, uncertain of survival. The Governor of California, Mr Jerry Brown, vigorous critic of “Reaganomics,” said that the President's reduction of the federal budget will mean the loss of ■ $lOOO million in funds previously committed to California. The Governor has ordered most state departments to slice two per cent from their expenditures for this fiscal year, and has deferred a list of public works and school projects, to keep the state out of the red. The California constitution forbids deficit spendingin Washington state, the Governor there recently announced a slash "across the board” of 12per cent in every department. He admitted

that identical cuts in every activity is unrealistic; the drastic announcement was apparently meant to trigger the legislature to find some quick fiscal remedy for the crisis. In Oregon, lawmakers are faced with crumbling state finances, too, among them a seemingly hopeless consequence of their own awkward contrivance. Under pressure from property owners they produced a law which, in effect, subsidises property rates, paying 30 per cent of them from other funds. The other funds are now inadequate. The legislators now long for escape from their self-entrapment. Governor Brown, who has consistently and , successfully, resisted increases in California taxes, said he will not propose new ones now, and that he may still make more budget cuts. However, his statements on new taxes are being read by some commentators as somewhat less resolute than in the past. Retrenchment, he says, is damaging the public, and "California is facing a real turn in the road.”