Panel Urges Tax on Food, Medicine : Governor’s Commission Proposes Whopping Hike in Sales Levy

A whopping expansion of the sales tax, including levies on such currently non-taxable necessities as food and water, was proposed Thursday by Gov. George Deukmejian’s Tax Reform Advisory Commission.

The commission’s complicated report also called for California to go to a simplified income tax system.

Deukmejian created the commission last year to “study the state’s tax structure and to recommend needed reforms.” But the governor quickly tried to put distance between himself and the commission’s politically sensitive recommendations, saying that he does not agree with the proposed elimination of sales tax exemptions on food, medicine, health services and other necessities.

Commission Chairman Dean S. Butler, a Los Angeles lawyer, said the commission proposed to offset increases in some taxes with decreases in other taxes.

He said that if the entire package is adopted by the Legislature, the level of state tax revenues would stay about the same.

Appears Unlikely

But adoption by the Democratic-controlled Senate and Assembly appears unlikely. Many of the proposals, such as one that would increase the per-pack tax on cigarettes from 10 cents to at least 30 cents, have been discussed around the Capitol for years, while others, such as ending the sales tax exemption for necessities and other commodities, such as newspapers and eyeglasses, have been brought up and defeated.

Butler said that he and others on the seven-member commission “did not attempt to consider the political ramifications” of the recommendations.

In brief, the commission proposed:

- Elimination of all sales tax exemptions, including those for food, water and medicine, along with extension of the sales tax to services, such as those provided by doctors and lawyers. Members of the commission said that with no offsetting changes, ending the exemptions would cost Californians an additional $6 billion a year, but the advisory group also proposed a reduction in the current 6% sales tax rate that would partially offset the increase.

- Adoption of a simplified income tax system, involving essentially a flat tax on all income and the elimination of all deductions except those allowed for interest deductions on principal residences and charitable contributions. The commission said this would amount to a cut of nearly $900 million in annual state income taxes paid by Californians.

- At least a 10% cut in the bank and corporation tax rate. Commissioners, able to provide only gross estimates, said this could amount to a cut of $400 million or more, claiming that it is justified because corporate rates are now among the highest in the nation.

- A change in the California Constitution that would allow for periodic reappraisals of commercial and industrial property to permit larger increases in property taxes than now allowed under changes that went into effect with Proposition 13.

The latter proposal is close to a split-roll method of tax assessment, which would place higher property tax levies on business property than on residential property. It also is opposed by Deukmejian.

But Commissioner Lewis P. Geyser, a Los Angeles real estate man and tax attorney, said the commission considered the proposal an “equity roll” rather than a split roll because it distributed the burden of property taxes in a more fair way.

Deukmejian released a statement saying that he refused to support the commission’s recommendations on taxing necessities even before the commission formally unveiled the proposals at a Capitol news conference.

Geyser said the sales tax proposal “eliminates most if not all the special interest groups.”

Opposed by Democrats

Increases in the sales taxes have long been opposed by Democrats on the grounds that it is a regressive tax that hurts the poor more than the rich because a greater share of disposable income goes to necessities among low-income families. The sales tax also is criticized because the 6% levy affects all taxpayers equally, regardless of ability to pay.

Commission members said they hoped to mitigate any adverse impact on low-income taxpayers by allowing them to take offsetting credits on personal income taxes. Thus, low-income taxpayers could file at the end of the year for a full or partial refund of the amount of sales tax they paid. The commission was not clear on exactly how much of a credit would be allowed or how it would work.

The flat-tax proposal would place an even tax of 5% on all income subject to tax, with a surcharge of 5% for taxpayers filing jointly with incomes of $60,000 or more, or $30,000 on single or head of household returns. It also would tax previously untaxed Social Security and unemployment benefits.

Taxpayers filing a joint return with an adjusted gross income of less than $16,000 would not have to pay a state income tax. For single taxpayers, the threshold would be $8,000.

Reaction Delayed

Reaction was relatively slow in surfacing because the report was not widely distributed Thursday.

The head of the pro-business California Taxpayers Assn. sharply criticized parts of the proposal, claiming that “a strong anti-business message” was reflected in the proposal to split property tax rolls.

William Bennett, a member of the state Board of Equalization, described the notion of taxing food and medicine as “primitive and socially unacceptable. I can’t conceive of anyone in the 20th Century proposing that.”