Los Angeles Times, March 2, 2008

Letter to the Editor

Re: Bill Stall, "Even Reagan Raised Taxes," Opinion, Feb. 26

Stall needs a history lesson. In 1991, facing an inherited $14.3-billion budget deficit, Wilson and state legislators agreed to raise taxes by $7.2 billion.

Politicians assumed that hikes would increase long-run tax revenues, thereby closing the budget gap. It didn't happen. Revenue did rise $3.5 billion in the fiscal year the tax package took effect, but this one-time increase was not surprising because the higher tax rates were essentially being applied to past economic activity.

Going forward, however, businesses and individuals changed their behavior in response to the new taxes, resulting in a revenue drop of $2 billion over the next two years. For the third consecutive year, revenues fell short of budget estimates, and by May 1993, the state faced a massive $8-billion budget gap.

Contrary to Stall's claims, a tax hike will not solve the state's current budget crisis.

Lawrence J. McQuillan
Director, Business and Economic Studies
Pacific Research Institute
San Francisco