Two Proposals Tied to State Budget Surplus : Californians May Get a Tax Break in ’85

If several lawmakers get their way this year, California taxpayers can look forward to a simple one-page state tax form in the future and, if the state’s economy remains robust, maybe either a tax cut or tax rebate.

Two lawmakers, one from each party, are proposing bills that would return tax revenues to Californians if the state builds up a large surplus.

Another legislator is planning a new version of a “flat tax” bill he proposed unsuccessfully last year.

Just two years ago the Legislature and then-newly elected Gov. George Deukmejian were struggling with a staggering deficit of $1.5 billion, mostly caused by faltering tax revenues due to the recession.

Democratic leaders in the Legislature proposed several major tax increases to balance the budget, concentrating on the 6-cent sales tax. The Republican governor instead proposed a package of spending cuts and increases in vehicle fees and a few minor taxes, which he predicted would pay off the debt if he was allowed to carry part of the deficit over into the next fiscal year.

The Legislature acquiesced, the economy improved and the deficit was wiped out by last spring. The current fiscal year is expected to end with a reserve or surplus of $986 million on June 30.

Deukmejian has proposed a 1985-86 budget of $33.6 billion with a reserve of $1.05 billion or 3.7%. But the Commission on State Finance has estimated that the surplus by the end of that fiscal year could be as high as $2.2 billion.

Some Democrats fear that Deukmejian wants to build up a large surplus and give a tax cut in 1986, when he faces reelection. At a news conference last month, Deukmejian would not deny that he might seek a tax cut next year. He said that he would “certainly consider” any tax cut proposals made by lawmakers but that he did not believe there would be a large surplus.

Two Bills Offered

The two tax-cut bills have been offered by Democratic Assemblyman Gary Condit and Republican Assemblyman Robert Naylor.

Condit’s bill is very simple. It would set up a taxpayers’ rebate account into which all tax revenues above those needed for state programs plus a 4% reserve would be deposited each June 30, the end of the fiscal year. The Legislature would decide how to give that excess money back to taxpayers.

Condit (D-Ceres) said he will amend his bill to make the reserve 3.7%, the same as that sought by Deukmejian.

Condit said his idea is supported by Assembly Speaker Willie Brown (D-San Francisco).

“It sets up the process and leaves open the details for discussion,” he said.

‘Remove the Temptation’

His bill would “remove the temptation for either the governor or the Legislature to treat unanticipated revenues as a windfall.”

Naylor’s bill is more complex and sets up specific tax cuts that would be triggered by future surpluses.

Naylor, the former Assembly minority leader who is planning to run for the U.S. Senate in 1986, said his proposal would result in a $1.2-billion tax cut “if California’s economy continues a robust expansion.”

Under his plan, a $200-million surplus above a prudent reserve would trigger a $50-per-person personal income tax credit. Larger surpluses would set into motion, in order, a 15% child-care credit, increased renter’s credit, increased Individual Retirement Account deductions and dividend and interest exclusions, all on the personal income tax.

27% Tax Cut

Larger surpluses would trigger a 1-cent cut in the 6-cent sales tax and, finally, a 27% cut in the personal income tax rate by 1987-88.

“My proposal would provide a permanent mechanism for the return of any excess revenue collection to the people of this state and would lead to a fairer system of taxation for all Californians,” said Naylor (R-Menlo Park).

Condit’s and Naylor’s bills can be heard by the Assembly Revenue and Taxation Committee beginning in this month.

The new flat tax bill will be introduced soon, said Assemblyman Elihu Harris (D-Oakland).