Leading man needs to lead - Arnold Schwarzenegger & California's budget

If some guy had told me six years ago that Arnold Schwarzenegger the movie star would be my Governor, I wouldn’t have believed it – partly because I don’t think he can be taken seriously in the role of a politician. If that guy also told me that Governor Schwarzenegger would be presiding over an intractable budget crisis, I would have called him crazy – partly because Arnold the movie star had proven he mastered the art of the deal with his contract for “Terminator 3.” An actor who can get a studio to guarantee a $29 million payment whether or not a movie is made, $1.6 million for every week shooting runs over schedule, 20% of gross receipts in every market in the world – and change the usually mystifying definition of the “cash break-even point” on the back end – can do anything.

I wrote in this column in February that the Governor needed to get tough on one or two Republicans and push his budget through. Now that he’s out of the frying pan and into the proverbial fire, it’s time for a different approach. He should reject the premise that California can’t afford to pay our bills – along with the false choice of either raising taxes or cutting spending. The combination of his movie star status and his family’s political history put him in a unique position to lead by his example on a budget issue that will be widely supported by Democrats and Republicans in the Assembly and be very popular among voters: closing the tax gap.

The state of California has one of the largest economies in the world (ranking somewhere between France and Italy) and our budget is about $25 billion short this year. That would seem like an insolvable problem until you find out the difference between what the state of California is owed in personal income, corporate, sales, and use taxes and what we’ll collect is estimated at $8.5 billion. When 30% of the problem can be solved by balancing the books, it’s not a budget crisis, it’s a leadership crisis. Our country has a great leader, but it has yet to be seen if our state can say the same thing.

In the midst of a historic recession, the federal tax code is being changed to emphasize fundamental fairness and close the loopholes that have led to a $350 billion federal tax gap. If Governor Schwarzenegger had the courage to take similar steps here in California (starting with ending the supermajority requirement to raise taxes), we could add as much as $5 billion from readjusting the top tax bracket and $5 billion from taxes on alcohol and entertainment to the $8.5 billion that is our tax gap and reduce our budget deficit by two-thirds – without cutting services or raising taxes on the middle class. And we’d be well on our way to a future of consistently balanced budgets. That legacy has to be more appealing to Arnold than being remembered as the Governor who ruined the state’s credit rating while taking medicine away from poor kids and little old ladies so California’s superrich could have lower taxes.

Arnold Schwarzenegger is at a crucial point in his political life. He doesn’t have to look any further than the Republican ticket in ’08 to see the obvious pitfalls of not solving this budget problem. He can’t go to Washington if he doesn’t work this out because there is no higher office available to failed Governors (ask Sarah Palin). And it doesn’t matter if you passed landmark climate control laws, if you’re out of touch with the economic realities of this recession, that’s all anyone will remember about you (see: “McCain, John - the fundamentals of our economy are strong”).

The economic reality in California is that there is plenty of money to go around, but not enough is actually going around. For example, the $30 million Arnold was paid for “Terminator 3” wasn’t paid to him, but to Oak Productions, Inc.; a front company that, for tax purposes, then “lent” him to the movie. While that might make sense for Arnold the movie star who understandably wants to keep all of his money, it makes the job of balancing the budget much more difficult for the Governor and the Assembly.

If there is one person alive who can square that circle, it’s Arnold Schwarzenegger. This is a man who has made a fortune in the private sector, becoming one of the most powerful people in one of the most influential industries in the world, then rose to become one of the most powerful people in politics. He now stands astride both worlds with a sphere of influence our former movie star Governor, Ronald Reagan, would have to envy. It’s time for him to set an example by very publicly vowing to pay his fair share in taxes, then convincing, cajoling, begging, or shaming people in his and Maria’s professional and social circles into following suit - if for no other reason than the financial health of the state of California.