A tale of 2 economic proposals

Paul Clinton

A nettlesome state budget crisis could take the steam out of

President Bush’s economic stimulus package, local Republican leaders

said Thursday.

Gov. Gray Davis, at a noon press conference today, is expected to

propose wide-ranging tax increases, spiced with spending cuts, when

he releases his revised budget. Davis said Wednesday that he hoped to

end “the roller-coaster budget ride” in which the state is facing a

$35-billion shortfall this year.

“I think the people in the state of California will not be

enjoying the same benefits as other parts of the country, because

Gray Davis has ... undermined the positive effects of the president’s

package,” said Rep. Dana Rohrabacher, who represents Costa Mesa.

On Tuesday, Bush offered a $674-billion stimulus package, which,

at its center, proposes to eliminate federal taxes on stock

dividends. It would also speed up Bush’s 2001 tax-cut plan, which

includes a revamping of tax brackets and elimination of the so-called

“marriage penalty.”

The package did not include a long-standing proposal by Rep. Chris

Cox of Newport Beach to eliminate the estate tax. Cox, who first

proposed ending the federal government’s tax on inheritances in 1993,

reintroduced the bill Tuesday. He has promised its repeal by July 1.

That it was not included in Bush’s plan is not necessarily

doomsday for Cox’s proposal, said Jim Toledano, the former head of

the Orange County Democratic Party and a Costa Mesa attorney.

“The Bush package and Cox’s bill are all designed to give tax

breaks to people with a lot of money,” Toledano said. “The fact that

Bush left that particular tax break out of his package of tax breaks

for the wealthy doesn’t help it or hurt it.”

Cox lauded Bush’s stimulus package as an effective way to return

money to the pockets of investors and companies to stimulate spending

and job growth. Cox estimated that the nation’s economy would see a

$32-billion-a-year shot in the arm from the plan.

It would counter an estimated $5 billion loss in tax revenue to

California that Bush’s package caused, Cox said.

“The effect of this proposal will be to free up many companies to

pay dividends that presently aren’t [paying them],” Cox said. “If we

can get the economy going again, we can restore that lost revenue to

Sacramento and, indirectly, to Orange County.”

To help remedy the worsening financial situation in Sacramento,

Assemblyman John Campbell on Thursday introduced legislation that

would install a spending cap in the state Constitution.

On Wednesday, Davis addressed the Legislature for his State of the

State address.

“I don’t have all the answers,” Davis said in the Assembly

chamber. “None of us do. But I will lead the discussion. And I will

not sign a budget without substantial structural reform.”

Campbell, who represents Newport Beach, said his proposal was an

answer to Davis’ budget deficit, which mushroomed to $35 billion

shortly after his November reelection.

Campbell introduced Assembly Charter Amendment 6, which would cap

spending so it could grow no faster than population and inflation.

“He doesn’t have all the ideas, so we’re going to give him some,”

Campbell said of his party’s plan. “If we’re going to end the

roller-coaster ride, you need to have some limits on spending. And

you need to set up a reserve fund in good years, so you can tap that

money in bad years.”

* PAUL CLINTON covers the environment, business and politics. He

may be reached at (949) 764-4330 or by e-mail at

[email protected].