Bruce Fuller: State can't afford to ignore T-word

The bright shimmer of Gov. Arnold Schwarzenegger's star has faded in recent months, not unlike an actor suddenly threatened with bit parts in back-lot productions.

After promising families affordable health coverage and stronger public schools, Schwarzenegger seems to have switched scripts – now sounding more like former Gov. Jerry Brown, who once told striving Californians to just lower their expectations.

Speaking before the Legislature next month, Schwarzenegger will likely attribute his diminishing clout to events beyond his control, such as the flagging housing market and sputtering tax revenues.

The governor is already dampening his infectious optimism with key interest groups, meeting privately with education lobbies in San Diego last month to signal that his promised "year of education reform" must wait. His pledge to deliver affordable health care may fall victim to cost worries and ferocious opposition from drug companies and insurers protecting their profits.

But the governor could return to his upbeat story line if he found the political chutzpah to mention the T-word and build the case for equitable tax reform.

After six years of welfare for the well-off under President Bush, and almost three decades of suppressed commercial levies under Proposition 13, wealthy Californians and big business no longer pay their fair share to support the public infrastructure from which they heartily benefit.

Together Californians earning over $1 million a year have reaped $15.7 billion in tax savings since Bush's lopsided tax cuts were enacted in 2001, according to the Brookings Institution. Capturing this windfall, even temporarily, would greatly ease the state's budget deficit.

Nor should the governor hold Proposition 13 as sacred, the tax lid that once saved many retirees from losing their homes to escalating taxes. Yet 29 years later it's overkill. Just five states now tax property at lower rates than California. Even homeowners in Mississippi pay higher rates, according to the nonpartisan Tax Foundation.

California once taxed commercial property at a higher rate than homeowners, a pro-equity "split roll" policy, wiped out by Proposition 13.

The Golden State is the 13th richest in the nation, but our overall tax burden to support the public schools ranks 36th, far below the share of personal income going to education in less affluent states, like Texas.

Schwarzenegger recently scolded Republican leaders for becoming too conservative.

"We're losing at the box office," he said. "I am of the Reagan view that we should not go off the cliff with flags flying."

But on fiscal policy Schwarzenegger has moved well to the right of his preferred paragon. Gov. Ronald Reagan raised taxes 18 percent in 1967 rather than stem expansion of state highways and higher education. As president, Reagan boosted federal taxes by almost $4 billion a year in 1982 in a counter-cylical move to help jolt the nation out of recession.

By moderating on tax policy, Schwarzenegger could deliver on school reform. Voters are willing to pay more for better schools if they see education funds being spent more effectively, according to one recent poll. Moderate business groups are pressing the same point.

This month the governor's Education Excellence Commission is due to release a blueprint for economizing. The members will urge consolidating the state's 138 haphazard school funding streams, each requiring costly regulations and monitors inside school district bureaucracies.

They will suggest that principals be allowed to pay teachers more to fill hard-to-staff schools or specialties such as math and science posts. Another way is to shrink the bureaucratic apparatus sitting high above local schools.

Even with greater productivity, the schools will require more funding to attract strong graduates into teaching jobs and to reduce turnover through more professional working conditions. This requires a persuasive case for tax reform, perhaps implemented as the state's economy rebounds.

California is becoming a society of two castes: rich and poor separated by a thinning middle class. Data from the Internal Revenue Service show that over 21 percent of our income nationwide now flows to the top 1 percent of all earners.

Schwarzenegger has the opportunity to lift working families by righting the wrongs of the Bush tax breaks and bringing commercial levies in line with the national average. Strengthening the schools then becomes affordable, rekindling the optimism of parents and politicians alike.

About the writer:

• Bruce Fuller, professor of education and public policy at the University of California, Berkeley, recently published "Standardized Childhood" (Stanford).