Last Resort: Dukakis faces reality

It was what a candidate, particularly a Democrat, least wanted to do in an election year: raise taxes. After two months of dodging Massachusetts' now $400 million deficit, Michael Dukakis took a step that will allow the G.O.P. to hound him unmercifully: he signed a 5% sales tax on cigarettes, worth $40 million next year, and supported a measure to raise $75 million by aligning the state tax code with federal law.

How did such a scrupulous numbers cruncher end up having to impose $115 million in new taxes? Federal tax reform. To take advantage of the favorable capital-gains measures in the old law, taxpayers unloaded huge quantities of stocks and property in 1986. That boom in financial transactions gave Massachusetts a $140 million budget surplus in 1987. The bill came due this spring, when tax revenue from the windfall dried up and the state found itself in the red. Similar scenarios have unfolded in New York and California, where fellow Democrat Mario Cuomo and Republican George Deukmejian each face deficits in the neighborhood of $1 billion.

George Bush was quick to pounce on Dukakis. "That's the difference, as plain as day, between us," said the Vice President. "Tax cuts vs. tax hikes. I will not raise your taxes, period." Dukakis, who boasts that he has balanced "nine budgets in a row," shot back by pointing to the Reagan record: "This Administration has raised taxes four times in six years ((and)) given us more red ink than all the Administrations from George Washington to Jimmy Carter combined."