Howard Jarvis Fights Round II

Howard Jarvis has thrown California politics into an uproar again this year—and this time the professional politicians are running scared. While Jarvis’s 1978 co-sponsor of Proposition 13 (which cut property taxes in the state by nearly $7 billion), Paul Gann, is busy mounting his campaign for the Republican senatorial nomination, the 77-year-old Los Angeles tax activist is trying to have California’s personal income tax rates slashed by half. And, at this writing, it looks as if he’ll have nearly as easy a victory on June 3 as he did two years ago.

But while opponents of Proposition 9 (dubbed Jarvis II by many, and Jaws II by its detractors) are again sounding tocsins of impending doom, predicting major cuts in funds for libraries, parks, education, and supplemental welfare payments to the elderly, their voices aren’t as strident as they were in 1978. They’ve lost too much of their credibility because of their quickly disproven forecasts of the disaster that would follow passage of Proposition 13, and they’re unwilling to risk what little public confidence they still have. As Jarvis himself said in mid-March, when he debated State Senate President James Mills (D-San Diego), “Remember the anti-13 campaign? The sales tax would go to 12 percent, unemployment would rise, be tremendous—remember that? The people of California saw through that myth and will see through [this one].”

Even sometimes-Governor Jerry Brown, a fanatic opponent of Prop. 13 until the day after it passed, was conciliatory, almost apologetic, in announcing his disapproval of Jarvis II in a statewide radio and television broadcast on March 20. Trying to avoid sensitive toes, Brown ticked off four arguments in favor of Proposition 9 before observing that he saw “two defects” in the measure. Walking to a chart, the nation’s best known part-time absentee chief executive noted that “it gives 55 percent of the money that will be taken back from government to the richest 10 percent of the people. Secondly, it assumes that the economy will grow as it has for the past several years. For myself, as I analyze all these factors, I believe that it is unfair to give so much money to so few, and that’s precisely what Prop. 9 does.” (Brown’s comments about the economy referred not only to Prop. 9’s promise of increased sales tax revenue from increased spending, but also to the likely generation of new jobs in the state. While Prop. 13 led to the loss of some 100,000 government jobs—principally through attrition and leaving open slots unfilled—it helped create 350,000 to 500,000 new jobs in the private sector. Jarvis estimates that Prop. 9 would eliminate 200,000 government positions while leading to at least 220,000 additional private sector positions.)

Yet Brown concluded his talk by declaring, “I will faithfully carry out the mandate of Prop. 9 if that is your will. I will do it in the most humane way I know how. But as to how I personally feel, I’m going to vote ‘no’ on Prop. 9.” A far cry from his ringing indictments and catastrophic predictions when Prop. 13 was on the ballot two years before.

Jarvis, who has become the national personification of the word “curmudgeon” as well as the official folk hero of the anti-tax movement, reacted in typical fashion, calling the governor’s address “a heap of garbage” and labeling Brown “a lousy economist.” He predicted Brown would be “reborn again” after Prop. 9 passes—a February poll showed it leading 54-34 percent—just as he was after Prop. 13’s victory.

It’s hard not to expect a repeat of 1978. The anti-Jarvis rhetoric is familiar, and so is the almost laughable numbers game being played by state officials. Two years ago, during the Prop. 13 campaign, Governor Brown and a multitude of other state officials all asserted that California would have only (!) a $1.5 billion surplus at the end of that fiscal year. Jarvis forecast a $6.5 billion bulge—and he hit the target on the nose. This year the figures have diverted similarly, though not as drastically. Last November, Bill Hamm, who holds the ostensibly nonpartisan position of state legislative analyst, indicated that the state surplus at the end of June would be a mere $1.1 billion—hardly enough to withstand the rigors of an income tax cut of somewhere between $3.4 billion and $4.9 billion and still help local governments overcome the revenue losses already imposed by Prop. 13 (to the tune of more than $4 billion each year).

But that figure didn’t last long, as Brown administration bigwigs began hedging their bets. When Governor Moon-beam’s proposed budget for fiscal 1981 was released in January, his finance director, Mary Ann Graves, announced that the surplus would reach $1.8 billion. By late February, rumors had begun circulating in Sacramento that her department was about to up the figure to $2.1 billion. Meanwhile, state Treasurer Jess Unruh—the notorious former Democratic political boss—was suggesting the surplus might hit $2.6 billion. And only two weeks later, the leading Prop. 9 opponent among the state’s elected officials, Senate President James Mills (who is not up for reelection this year) insisted the surplus would be only $2.6 billion, not the $3.1 billion his debating partner—Jarvis—predicted. “Economic forecasting is in a shambles right now,” lamented Legislative Analyst Hamm to San Francisco Chronicle reporter Jerry Roberts in late February. “Nothing works, but the voters expect that we’re just not telling the truth.” An economist named Murray Rothbard could have told him that years ago.

Equally confusing are the estimates of just how much Jarvis II will return to California taxpayers’ pockets. While slashing income tax rates by exactly one-half, Prop. 9 would cut the income tax revenue of the state by 54 percent, because it would leave unchanged some deductions—for renters and homeowners, for example—that are fixed dollar amounts subtracted from the total tax. Business partnerships—primarily medical, legal, and the like, but also including some apartment owners and similar groups and one-person businesses—would also benefit from Jarvis II, because they are taxed on the same schedule as individuals. Prop. 9 also contains two provisions that were enacted by the legislature since Jarvis announced the start last July of his petition drive, which produced a total of 800,000 signatures from every county in the state.

Consequences—known and unknown

One of these new provisions puts an end to California’s business inventory tax, an annual tribute to the state exacted from all businesses based on an assessment of their inventory. The second “indexes” the various income tax brackets according to the rate of inflation, so that the top and bottom income figures for a given tax bracket rise along with prices. (Last year, the maximum tax rate, 11 percent (which Jarvis II would cut to 5.5 percent) applied to single individuals with $16,310 in taxable income.) Prop. 9 would make both of these measures permanent—not just subject to the whim of the legislature—by ensconcing them in the state’s constitution.

When Bill Hamm issued his initial estimates of Jarvis II’s impact in mid-January, he presented a figure of $4.9 billion in revenue lost to the state for the first year. Later, that figure was revised downward to $3.4 billion. And a legislative measure proposed by State Senate Republican Leader William Campbell (and endorsed by Jarvis) to make Jarvis II effective the day after it passes, rather than (retroactively) on January 1, would, if approved, cut more than a billion dollars more off that figure. As a result, Governor Brown’s financial aides have revised their original guess that Prop. 9 would reduce state revenues by 20 to 25 percent down to about 10 percent. Moreover, Jarvis has pointed out that increased state tax revenues from the partial decontrol of oil that will take effect later this year will mean additional millions for the state.

And these are only a few of the numbers being bandied about by both sides in the Prop. 9 debate. Two of the others are of particular interest. First, more than one-fifth of the taxes that Californians won’t have to pay after Jarvis II passes will simply be grabbed up by Uncle Sam, since there’ll be less state income tax to deduct on federal returns. Second, there’s Jarvis’s rebuttal to the governor’s charge that Prop. 9 is a “gift for the rich.” Among people filing returns as individuals, those with incomes of $10,000 or less would have their income tax cut an average of 63.1 percent, while individuals with $50,000 or more taxable income would save only 46 percent. For couples, those with less than $10,000 in joint income would have their taxes reduced 73.8 percent; those making $50,000 or more, 49.4 percent. With Prop. 9 in effect, low-income taxpayers would contribute an even smaller percentage of all income taxes than they currently do.

The line-up of Jarvis supporters and antagonists this year is familiar. One of the earliest Prop. 9 proponents was Lieutenant Governor Mike Curb—a Republican who made his fortune as the boy genius of the record industry. Last August, while the petition drive was still on, Curb announced, “I am for cutting government. If the leaders of the government won’t do it themselves, the people will have to do it.” Additional strong support has come from Republicans in the legislature. San Diego Mayor Pete Wilson, a moderate Republican, said earlier this year that although Jarvis II “will probably have to mean a reduction of grants” to welfare recipients, he tended to favor the measure because it was necessary to “impose discipline on legislative bodies which seem incapable of imposing it on themselves.”

Those few Democrats who have spoken against Prop. 9 are almost all bureaucrats or not up for reelection this fall. At one well-staged news conference in San Francisco, the mayor, the state AFL-CIO head, and a string of education, city hall, and labor leaders predicted enormous cuts in school programs, a rise in unemployment, and major disruptions of city services if Jarvis II receives the voters’ OK. Citizens for California, an umbrella anti-Prop. 9 group, has listed among its members such bureaucratic stalwarts as the State Board of Education, the University of California, the California State Employees Association, the League of California Cities, the California Fire Chiefs Association, the California Federation of Teachers, the California State PTA, and the National Association of Social Workers. And U.C. President David Saxon has warned that tuition will surely have to be imposed if Jarvis II passes—the same prediction we heard in 1978.

But some people and organizations have come down on unexpected sides of the question. Jarvis’s former associate, Paul Gann, had not come out in support of the proposition by late March. When he announced his entry into the U.S. Senate race on February 22, he would say only that he was “leaning toward” giving it his support. Even his staunchly liberal incumbent opponent, Alan Cranston, wouldn’t take a stand when he announced his candidacy for reelection a week earlier.

The most unexpected opponent of Jarvis II is a man who appeared in television commercials supporting Prop. 13—Milton Friedman. He says he expects it to pass, but predicts that Californians will pay higher prices as a result. His avowed reason for this claim is that the legislature will respond to Prop. 9 by enacting higher business taxes, and the cost of paying them will simply be passed on to the consumer. Although, like Governor Brown, Friedman will vote against the measure, the Nobel Prize winner does not feel with the Governor that passage of Jarvis II would be a “disaster. There is something good coming out of cutting taxes at any time, at any place, for any reason,” he told the Sacramento Bee. He declares moreover that “if you just went down to a state government office and fired every third person at random, there isn’t any doubt in my mind that the total productivity of those bureaus would go up, not down.” Yet, Friedman adds, he basically opposes writing tax changes into constitutions. “If you start using the constitution to legislate the specific form of taxes on one hand or the specific form of spending on the other,” he observes, “you get yourself in an inefficient structure of governmental organization” —thereby revealing his rash presumption that there exists some other kind of governmental organization.

Equally unexpected is the support Jarvis has received from two corners of the governmental labyrinth. Just two days before Governor Brown came out in lukewarm opposition to Prop. 9, the city council of Walnut Creek—a growing, affluent, suburban city some 30 miles east of San Francisco —voted to support it. Immediately, it was attacked for its stand by county school officials. But the council members were firm. “Our feeling was that we had gone through a budget-cutting exercise after Prop. 13, and it was a positive experience,” attorney and councilman William Armstrong told the San Francisco Examiner. “There were some things we couldn’t have done without being pushed. Cutting back a little here, a little there, we were able to do the same things with fewer employees. We learned something.”

Dr. Dale Farabee, the state’s mental health director, caused a furor in March when he declared that Prop. 9 would probably have a desirable effect in his bailiwick: “It may very well result in something happening in one year that we’ve been trying to do for 20 years”—namely opening the doors of the remaining state mental institutions and returning the incarcerated patients to their communities. He likened the effect to a “tornado that blows down that house you’ve been trying to tear down.” Since 1957, the number of “mentally ill” patients in state hospitals has fallen from 37,000 to 5,000. In some rather candid remarks, Farabee pointed out that many of the patients involved are in the state institutions simply because their behavior embarrasses others. “They’re socially unacceptable because they cause problems in the neighborhood. From a civil rights standpoint, that’s no reason to put them in an institution,” he said. “But pragmatically, it’s a fact.” A mental health department spokeswoman, Bertha Gaffney-Gorman, added that “our expectations are going to have to be different. We can’t be shocked if we see someone undress-ing in the middle of the street. We just don’t have the money anymore to get these people off the street.” Needless to say, local mental health officials throughout the state were quick to attack Dr. Farabee. One official declared that such a move would “produce a panic situation here,” while another called Farabee’s remarks “nonsense” and predicted such dire consequences as the “mentally ill” being jailed for disorderly conduct.

Passing the buck

Other bureaucrats have more direct means at their disposal with which to fight Jarvis II. In December, Governor Brown asked all state department heads to submit two budgets for fiscal 1981: a regular budget, plus a scaled-down version to accommodate $3.5 billion less state income. In early March, State school board president Michael Kirst defiantly refused to comply with the governor’s request for a 30 percent smaller budget. “We’ve told the Department of Finance, ‘You make the cuts,’” he declared. Making these cuts himself, he said, would mean that highly competitive special interests in education would “fight each other for scraps, turning the venom inward. I want it turned outward.” The Governor’s request, he said, “just plays into Jarvis’s hands. Jarvis is out there just itching to say that we’re crying wolf again.”

And that’s exactly what Howard Jarvis has been doing: spreading the word (thanks to $2 million he raised for the petition drive—all but $12,500 of it in contributions of $500 or less—and the up to $1.5 million more he’s raised for the campaign). The official kickoff for the battle was on Tax Day—April 15—with a half-hour television show aired, at significant cost, in almost every California media market. And although his opponents, headed by Los Angeles attorney Mickey Kantor, were trying to raise an equally substantial war chest, Jarvis II, thankfully, seems to be a winner.

LR contributing editor Marshall Schwartz is the Libertarian Party candidate in California’s 17th Assembly District, and the only one of the four candidates in the race to support Proposition 9.