Jarvis aiming to slash income tax next in California

First, it was Proposition 13, the 1978 voter initiative that drastically cut property taxes. Then last year Proposition 4 put a lid on all state government spending.

Now, those Californian's who continue to rankle at the growth of taxation and state spending propose to "finish the job" by slashing income taxes here by more than half in a June referendum.

California has been seen as the leader in the "tax revolt," and this latest skirmish is being closely watched for its impact on state and local government. Latest polls indicate it has a good chance of being approved in June (when the state's presidential primary election is held).

Leading the charge once again is Howard Jarvis, populist tax battler and author of Proposition 13. His latest effort will be listed as Proposition 9 on the June ballot, but is generally known as "Jarvis II." (some wags are calling it "Jaws II").

Proposition 9 would cut state personal income tax rates 50 percent across the boad. But because tax credits for such things as children, the poor, and the elderly would remain the same, the actual reduction in income tax revenues would be 54 percent. This would amount to nearly $5 billion the first year, or about one-fourth the annual state budget. Since nearly 80 percent of state expenditures go to local governments for education, welfare, and health items, municipalities would be most severely effected.

Proponents of Proposition 9 point out that taxes on income in California have shot up even faster than property taxes in recent years. While property tax collections rose about 150 percent between 1968 and 1978, income taxes skyrocketed nearly 350 percent over the same period -- largely through inflation and the lack of indexing to counter it.

MR. Jarvi's new proposal is progressive in that it would cut the taxes of those in lower income brackets by the greatest percentage. Opponents note, however, that, in total, those at the upper end of the income spectrum would receive the bulk of the savings.

The US Treasury Department has estimated that California stands to gain a windfall of some $22 billion over the next decade because of the decontrol of domestic oil prices. Jarvis supporters say this will help make up for the cut in personal income tax revenues.

Others argue that the federal government actually reaps much of the benefit of Jarvis-type tax cutting and that, as a result, individual Californians lose out. Because they had less property tax to deduct from taxable income, for example, Californians paid $1.9 billion more in federal income taxes after Proposition 13 was enacted. It is estimated that Proposition 9 would similarly cost California taxpapers $1.1 billion more in payments to Uncle Sam.

Reducing state taxes also costs California sizable amounts in federal revenue sharing, opponents warn. State officials put the revenue sharing loss from Proposition 9 at more than $200 million the first year after passage.

All of this confusion is expected to make it difficult for Mr. Jarvis's opponents to convince voters that his proposal is Draconian. They are in the position of the boy who cried "wolf" once too often.Just about the entire "establishment" -- politicians, unions, and big business -- warned that Proposition 13 would create chaos in government and severely reduce public services.

This did not happen, thanks to a massive budget surplus that had grown over the years and that allowed state government to "bail out" city halls and county offices. but opponents argue that the surplus is running out and that the effects of Proposition 13 have only been delayed.

As for last year's Proposition 4 (which limits any increase in state and local spending to hikes in population or the cost of living), inflation has allowed governments here to keep expandign their budgets, albeit at a slower rate.

In arguing for his tax-cutting measures, Mr. Jarvis puts forth the theory of University of Southern California economist Arthur Laffer. Mr. Laffer holds that cuts in government spending result in more capital investment, higher employment, and a generally healthier economy. Per capita income and jobs have risen in California since Proposition 13 went into effect, and the state's economy continues to improve.

But it remains to be seen whether this is evidence that the so-called "Laffer curve" is valid or that the California aerospace and defense industries (key parts of the state economy) have been immune from the US economic doldrums.

In any case, there already is evidence that Proposition 9 is having an effect here. Gov. Edmund G. Brown Jr. has told state officials to prepare two budgets for the coming year, one reflecting the possible effects of cutting state revenues by as much as 30 percent.

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