The "T" word has finally slipped from the shadows.

Facing a $15.2 billion shortfall, both the governor and the Democrats have proposed raising taxes. Gov. Arnold Schwarzenegger has suggested raising $6 billion per year with a temporary increase in the sales tax, a strategy some have labeled regressive.

Democrats have proposed raising $8 billion per year through increases in taxes on high-income households and corporations, a strategy others have labeled as anti-business. Republican legislators are holding firm to a "no-tax, no-way" pledge, arguing that any tax increase will hurt the economy.

The latter view – that tax increases hurt the economy – is often presented as a truth supported by all economists. But the allegation is not obvious and is, in fact, a bad guide to how Californians should react to proposed tax increases to balance the state budget.

A tax increase now will help the California economy. After all, any revenue stream should be judged on the value of the spending it would support. In this case, half of the additional tax revenue will go to support investments in K-12 and higher education. Another 30 percent will go to maintain health and social services for low-income families and disabled residents. Part of the budget supports investments in transportation and the bonds we pass to rebuild our infrastructure.

An educated workforce and world-class infrastructure are critical to attract private investment and jobs. And maintaining services for the poor reflects both our social values and means that every penny will be immediately put back into the local economy.

The education choice is particularly crucial. We can either cut spending by $500 per student or raise taxes to prevent these cuts. Other states spend more on each student than California, and as a result our students have fewer teachers, counselors, nurses and librarians than students in other states.

The Governor's Committee on Academic Excellence has recommended a substantial increase in per-pupil spending for at-risk students combined with major education reforms, partly so California can maintain its ability to compete in the world economy.

Education, infrastructure, and social services are also critical to maintaining our California Dream. From a state that once prided itself as being a land of opportunity, we have slipped to being one of the most unequal states in the Union. Critical to restoring our sense of fairness is a willingness to invest in the education, job training, and safety net coverage needed for economic mobility – and this social justice imperative happens to square with our competitiveness strategy as well.

Some suggest that tax increases are particularly bad in a recession since people are struggling to pay bills. While this might favor income taxes on high-income households over sales taxes, it does not provide an answer as to whether we should increase taxes or reduce government spending.

If taxes are increased to prevent cuts in public investments and services, then there will be less private spending and more public spending. There will be more money spent in schools and less money spent on consumer purchases. The money doesn't disappear from the economy; it gets reallocated.

So it's a question of priorities. Even the larger revenue increase proposed by the Democrats is relatively small in relation to our economy – $ 8 billion out of a $1,600 billion economy – amounts to a penny out of every two dollars state residents earn.

If the fight were about what was best for our economy, maintaining public investments would win hands-down. Instead, all the heat is about ideology and deeply held views about the role of government.

Fine, but don't pretend that the governor and the Democrats are somehow job-killers. The Public Policy Institute of California has studied business relocation from California for all reasons, including taxes, and finds that relocations never accounted for more than one-tenth of 1 percent of jobs in the state in any year; they called these job losses "negligible."

And remember that tax increases in the early 1990s – which demonstrated state responsibility in tough times – were followed by a large wave of venture capital investment and job creation throughout the state.

What we should be talking about is what sort of economy and society we want. Poorly educated workers, crumbling infrastructure and communities that aren't great places to live and work will chase more investment away than small increases in taxes. Life involves making choices, and a small tax increase today is the right choice to help the future of the California economy.

Stephen Levy is director of the Center for Continuing Study of the California Economy in Palo Alto. Manuel Pastor is director of the Program for Environmental and Regional Equity at the University of Southern California. Both are economists.