Arnie's Economic Team Divided Over Taxation Policy

by Leroy Baker, Tax-News.com, New York

28 August 2003

As the election campaign for the governorship of California intensifies, marked differences are emerging within the Schwarzenegger camp on how to right the state's fiscal wrongs, most notably on the thorny issue of tax.

Schwarzenegger is backed by a formidable economic advisory team including Berkshire Hathaway chairman Warren Buffett, ex-secretary of state George Schultz and other notable Republican legislators and high profile names in Californian business and finance.

However, though this so-called Economic Recovery Council undoubtedly contains some of the finest business and political minds of the modern era, there appears to be no consensus on how to tackle the state's projected $38 billion deficit. Schwarzenegger explicitly stated that he is opposed to any tax hikes in his first campaign speech last week, saying that higher taxes "are the last burden to put on the backs of the people of California."

Nevertheless, a meeting of the dozen strong economic team last week resulted in at least one member calling for taxes to be increased to help close the deficit according to reports, and Buffett, ever willing to throw a bone for more conservative Republicans to chew on, has already indicated that he thinks Californian property taxes are too low.

Meanwhile, one member of the economic team, Warren Hellman, whose Hellman and Friedman firm owns a 10% stake in the Nasdaq, has expressed sympathy towards present Governor Gray Davies who will be unseated in the upcoming election on October 7. "I actually happen to be one of those who actually doesn't think that Gray has done that terrible a job," Hellman said in a Reuters report.

Ed Learner, an economist at UCLA and director of the Anderson Forecast believes that control of spending should be the first priority of the new Governor and scaling back expenditure to the 1999/2000 level would be a useful first step. Still, even Learner concedes that taxes may have to be raised if this approach fails, if only to attract Wall Street back towards the state's bonds, which are rated the lowest in the United States.

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