California has fallen and it can’t get up. This is a dangerous prospect for the nation’s fragile economic recovery since California represents 13 percent of the economy. While some are hoping President Obama can step in to save the day, the real man of the hour is in California already — Ronald Reagan.
The state faces the challenge of tackling a $22 billion deficit with its hands tied behind its back by voter initiatives and politics. The Legislature controls only 20 percent of discretionary spending and any tax increase requires some Republican support to meet a two-thirds vote requirement. Thus the fate of the state rests in the hands of 44 Reagan Republicans — 80 percent of whom have signed Grover Norquist’s “no tax” pledge.
The Republican leadership often invokes Reagan in seeking to hold the line on taxes and are pushing for draconian cuts in spending. For example, gubernatorial candidate Tom Campbell is calling for a 15 percent reduction in the state workforce, which would mean 45,000 layoffs in a state with 11 percent unemployment (and the second lowest rate of state employees per population). Economists fear that such a move may push the world’s seventh largest economy into a depression.
As one activist noted, “California under Arnold Schwarzenegger is a place where economic logic, basic math, and future planning go to die.” This comment is dead on but missing one important element — history. The Republicans who repeatedly invoke President Reagan to justify their willingness to drive the state’s economy off a cliff rather than yield on taxes forget one very important fact — Reagan raised taxes … bigtime.
Before you say “there you go again,” it is a fact that Gov. Reagan signed the biggest tax increase in California history (an 18 percent increase in 1967) and as president he raised taxes seven times including an $83 billion (in 2009 dollars) per year tax increase in 1982, which remains the largest tax increase since World War II. What today’s Republicans ignore is that while Reagan talked the conservative talk, he governed as a pragmatist. Unlike his self proclaimed heirs, he understood that governing was like driving a big bus which sometimes required unwelcomed detours and was not merely following a dogmatic monorail.
This has huge implications, not just for California but for the nation, since Republicans in both Sacramento and Washington are touting the “success” of supply side economics under Reagan to justify their “more tax cuts please” agenda and to oppose any tax increases or government spending initiatives. The Reagan tax increases (and high deficits despite them) are simply air brushed out as Republicans claim that the tax cuts paid for themselves and were the cause of the economic booms of the 1980’s and (ridiculously) the 1990’s. Top economic advisors to President George W. Bush, however, have openly stated that tax cuts do not pay for themselves, with one dismissing supply-siders as “charlatans and cranks.”
The flipside to the “Reagan Tax Cut” mantra is that taxes and government spending are anathema to growth. Yet in comparing the last 20 presidential terms in terms of GDP growth, every Democratic term (except Truman’s first term) is among the top 10, while the only Republican term is Reagan’s second which is ranked eighth. The fact is, as Reagan’s Budget Director David Stockman, conceded, the Reagan recovery was no miracle of supply side economics but rather “an average business cycle recovery.” What is a miracle is that so many people have been fooled to believe otherwise.
One state Assemblyman told me that California faced “fiscal Armageddon” if the February budget deal was not ratified by the voters, as the state will run out of money in a few weeks. That may be an understatement given that hardliners have taken over the Republican leadership in both chambers and may relish the opportunity to engage in budget brinkmanship.
Most of the forces that have brought the state to this metaphoric Armageddon — Proposition 13, ballot box budgeting, redistricting and voters repeatedly being sold a free lunch — cannot be remedied before zero hour. The only hope is Reagan, who could well have been talking to today’s Republicans clinging to a false cardboard cutout of him when he quipped “don’t be afraid to see what you see.”
If Sacramento Republicans look closely, they will see that the Reagan they worship for saying “go ahead, make my day” in threatening to veto a 1985 tax increase is the very same Reagan who ultimately signed it. If enough Republicans can abandon the political equivalent of the Easter Bunny and become real Reagan Republicans, Armageddon can be avoided and California can get back on its feet. Then we can move on to this “Reagan won the Cold War” nonsense.
Bennet Kelley can be reached at email@example.com.