A Lesson for Arnold Schwarzenegger: Warren Buffet to the California Democrat's Rescue
by Thomas Sowell (August 21, 2003)

Article website address: http://www.CapMag.com/article.asp?ID=3041

Now Arnold is trailing an undistinguished political hack named Cruz Bustamante in the polls. The ability of the Republicans to snatch defeat from the very jaws of victory is one of the political marvels of our time.

The most dramatic example was the elder President Bush, who looked so unbeatable back in 1992 that all the Democrats' heavyweights stayed out of the primaries, leaving the field wide open for a little-known governor of Arkansas to become President of the United States. President Bush 41's breaking of his "no new taxes" pledge was a major part of his downfall.

Apparently the Schwarzenegger camp has still not learned the lesson of 1992, that raising taxes is not the way to get Republican votes. Arnold's slide in the polls began after his economic adviser Warren Buffett opined that California property taxes were not high enough.

Political damage control is now under way but it is a little like trying to save the Titanic after it hit the iceberg.

There is something bordering on the obscene about a billionaire blithely talking about raising taxes on people who are a long way from being billionaires, in order to bail out a state government whose reckless spending has turned a large surplus into a record deficit in just a couple of years.

Too many politicians of both parties are too quick to look to higher taxes as the answer to fiscal problems. The very idea of cutting back on spending never seems to occur to them. Even when they talk about spending "cuts," what they often mean is that they are not going to increase spending by as much as they had planned to.

Even the famous federal government shutdown of 1995 was over these fictitious kinds of "cuts" that in fact had the government spending more money than ever.

The reason for favoring higher taxes over lower spending is quite simple: Every spending program has a constituency that will yell like stuck pigs if their "funding" is cut and will flood the media with claims that terrible calamities will occur unless they get their money.

Meanwhile, taxpayers are largely unorganized and inarticulate.

California's property taxes are lower than those in some other states but the circumstances in California are also very different.

Since the 1970s, severe building restrictions in California have led to skyrocketing housing prices, due to the drastically increased price of the land where it is still permissible to build.

When the market value of your home quadruples in a decade, your income is unlikely to quadruple along with it. Therefore, taxes based on the assessed value of your home take an ever larger share of your income.

The fact that your home is worth a lot more than you paid for it doesn't help you to pay your bills. The only way to get your hands on those paper profits is to sell the house -- and, since you still have to live somewhere, that means buying another house whose price has also skyrocketed.

Only by leaving California and going someplace where home prices are lower -- which is virtually everywhere else -- will you actually see some hard cash you can use. In recent years, more and more people have done just that, as more Californians have moved to other states than people from other states have moved into California.

However, for those who want to continue living in the golden state, the answer has been very different and it is called Proposition 13. This was an initiative that limited the amount of property tax increases that could hit someone who continued living in the same house.

Big spenders have blamed Proposition 13 for virtually everything that has gone wrong in California in the years since it was passed. But most of those big spenders have been Democrats.

Now Warren Buffet has made the attack on Proposition 13 bipartisan. This may save the governorship for the Democrats.