Concessions for Unitary Tax Cut May Be Sought

Gov. George Deukmejian said Monday that the state may seek something in return for unitary tax relief being sought by foreign nations and multinational corporations, mentioning specifically the lowering of foreign trade barriers by Japan as a possible bargaining chip.

“We must convince Japan and our other trading partners to make their markets as open to us as our markets are open to them,” the Republican chief executive said during a morning speech to the California Manufacturers Assn.

Amplifying on his remarks to reporters after the speech, Deukmejian said the issue of trade barriers was a key to discussions between the Administration and legislative leaders on proposed unitary tax legislation.

No Specifics Offered

“There is no question that (the trade barrier issue) is a major consideration for state leaders, both within the legislative as well as the executive branch,” Deukmejian said.

But Deukmejian offered no specifics on what the state could do to extract something in return for unitary repeal. “What form that could effectively take, I’m not sure yet,” he said.

In another development Monday, an industry-sponsored study estimated that the state’s first-year revenue loss from repeal of the unitary tax would be $240 million--less than half of the $560-million annual loss estimated by the Franchise Tax Board in an earlier report.

Proponents of unitary repeal hope the report will provide a spark that will help get unitary legislation moving. Unitary bills currently are being held in Senate and Assembly committees.

The study, conducted by the accounting firm of Touche Ross & Co., was sponsored by the California Manufacturers Research and Educational Foundation, an arm of the California Manufacturers Assn. Member companies who would benefit by unitary repeal helped finance it.

Revenue loss to the state from repealing the unitary tax is one of the governor’s biggest concerns.

Called Unaffordable

Deukmejian repeated Monday his position that the state cannot afford full repeal of the tax, even if the tax change does not take effect until the 1986-87 fiscal year as contemplated in current legislation.

Pressure for unitary tax repeal initially came from foreign-based multinational corporations, with the strong backing of their governments.

High Japanese and British government officials, including British Prime Minister Margaret Thatcher, have lobbied for repeal.

Critics claim the tax is unfair because it apportions a firm’s tax liability on the basis of worldwide earnings, payroll and property, rather than just on the amount of business conducted by the firm, or a subsidiary, in California.

Deukmejian’s comments reflected his continued close association with the policies of President Reagan and were in keeping with the tone set by Reagan Administration officials in their current high-level foreign trade talks with Japanese officials.

One state official, who requested anonymity, said the climate in the Capitol mirrored the mood in Washington. “The political climate with Japan definitely has changed. There is a feeling of: ‘Why are we doing anything for you when you are doing nothing for us?”’ he said.

Assembly Speaker Willie Brown (D-San Francisco), whose own speech to the manufacturers group was canceled because of a schedule mix-up, said in off-the-cuff remarks to reporters that he also supported some kind of quid pro quo arrangement in return for a unitary bill.

He mentioned specifically a desire to see the removal or lowering of trade barriers on California citrus, beef and telecommunications products.

But, without referring directly to Deukmejian, he said he detected a possible anti-Japanese mood developing that concerned him. “That’s not good. That’s not healthy. We ought to be very careful about that,” he said. “The whole question of foreign trade, and the whole question of California’s need to export goes beyond just Japan.”

Several unitary bills were scheduled for hearings before the Assembly Revenue and Taxation Committee last month, but they were taken off calendar because of lack of consensus on which direction to take.

A major unitary bill in the upper house, sponsored by Sen. Alfred E. Alquist (D-San Jose), chairman of the Senate Finance Committee, is scheduled for a hearing Wednesday. Deukmejian has said he will veto any bill that is not acceptable to him, and the Alquist bill falls into that category.

Despite continuing back-room discussions and intense lobbying by what amounts to a small army of lobbyists hired by corporate interests who would benefit by a tax cut, few are predicting that a bill will pass this year.

Deukmejian said, however, he is “hopeful” of getting a bill because “it seems as though everyone would like to see a change.”