Supply-siders wary of Schwarzenegger

California gubernatorial candidate Arnold Schwarzenegger may not be getting the right economic advice he needs to turn the state around, say some supply-side tax-cutters who are questioning the Republican movie star’s selection of advisers.

Since Mr. Schwarzenegger announced his candidacy for governor in the upcoming recall movement to oust Democratic Gov. Gray Davis, tax-cut activists have worried that his early decisions to seek advice from former Republican Gov. Pete Wilson and his aides and from business tycoon Warren Buffett have sent the wrong signal to voters.

“The Wilson crowd passed tax increases in 1991 that hurt the state a lot in the last recession. Wilson’s record is pretty poor on fiscal issues,” said Stephen Moore, a tax-cut crusader who heads the Club for Growth and a Schwarzenegger supporter.

Still, most supply-siders rationalized the decision by saying Mr. Wilson and his people knew how to win elections because he was the last Republican to occupy the governorship. But when Mr. Schwarzenegger decided early last week to name Mr. Buffett, a Democratic foe of Republican tax-cutting policies, to be his senior economic adviser, the tax-cutters became nervous.

Then, when Mr. Buffett proposed Friday that one of the solutions to California’s problems was to raise property taxes, saying they were too low, conservative supply-siders began questioning the way the Schwarzenegger campaign was choosing its economic team.

“Raising property taxes? There’s a political winner,” Arthur Laffer said sarcastically. Mr. Laffer, who is an economic consultant in San Diego, is the legendary godfather of the supply-side tax-cut movement adopted by President Reagan.

“Schwarzenegger is a smart businessman. He’s got all the attributes to be a great leader. Now he needs a program” to cut taxes, Mr. Laffer said.

But in a personnel turnaround Friday that has become the hallmark of Mr. Schwarzenegger’s campaign strategy, he named George Schultz as another top economic adviser. Mr. Schultz chaired Mr. Reagan’s Economic Policy Board in the early 1980s before becoming secretary of state.

Mr. Schultz has been an ardent tax-cutter and his appointment had some supply-siders feeling a little better at week’s end that Mr. Schwarzenegger was moving slowly in the right direction.

“When some of Reagan’s people wanted him to slow the tax cuts, I called up Schultz and the people on the board, and we met in the White House and agreed with Reagan that the tax cuts should go forward and Schultz was fully on board,” said Martin Anderson, who was Mr. Reagan’s domestic-policy adviser.

Both Mr. Anderson and Mr. Schultz are scholars at the Hoover Institution in Palo Alto, Calif., a conservative think tank that provided Mr. Reagan and now President Bush with many of his advisers.

Mr. Schultz is not the only tax-cutter Mr. Schwarzenegger is reaching out to for advice on his budget policies. He has also been talking with Hoover fiscal analyst John Cogan, who served on the White House advisory team that helped shape Mr. Bush’s budget and tax-cut plans.

Even though his official economic team is not fully formed, and the specifics in his agenda remain question marks, Mr. Schwarzenegger does not lack for outside advice on how to put California’s fiscal house in order.

He was planning to meet with Mr. Laffer, Mr. Moore, magazine publisher Steve Forbes and Wall Street economist Larry Kudlow to hear their tax-cut proposals, but the Buffett announcement last week forced a postponement of that meeting, Mr. Moore said. They say they are still waiting.

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