Reagan’s Tax Plan Brings Legislators Into Uneasy Alliance

Anti-Reagan Democrats and anti-tax Republicans are falling into an uneasy alliance here over the President’s plan to eliminate federal deductions for state and local income taxes.

The proposal, a keystone of Reagan’s monumental tax reform package, has inspired two pieces of legislation likely to be taken up by the state Senate within a few days, perhaps this week. Because California is a relatively high-tax state, the loss of the state income tax deductions “would reduce the federal deficit disproportionately at California’s expense,” said Sen. Marian Bergeson (R-Newport Beach), author of one of the measures.

“It is unfair to California and other high-tax states,” echoed John Hendricks, assistant to Senate President Pro Tempore David A. Roberti, author of the other measure.

Hendricks cited a congressional study that shows that a California family of four with earnings of $50,000 would pay $1,350 more in annual taxes without the federal deduction for state income taxes.

“The last major increases in sales and income taxes in California were pushed through the Legislature by then-Gov. Reagan in legislation authored by then-Sen. George Deukmejian,” Roberti, the Senate Democratic leader, said at a press conference last week. “Now to take away our ability to deduct those taxes . . . is really unfair.”

Bergeson’s bill, which she says is not intended to be at odds with Reagan’s proposed tax reform, would ensure that Californians can pay their 1986 taxes in 1985 “to take advantage of the federal deduction while it is still available.”

Meanwhile, Roberti, the Senate Democratic leader, has proposed a non-binding resolution urging Reagan and Congress to leave the state and local deductions intact.

Roberti introduced the resolution June 3, six days after Reagan unveiled his plan for a comprehensive restructuring of the federal tax code.

Bergeson, who got the idea from state Board of Equalization Chairman Ernest Dronenburg, introduced her bill last month in anticipation of the tax reform legislation in Washington.

“I don’t think of this as anti-Reagan,” said Bergeson. “I look at it as pro-California.

“As a Republican, I feel strongly that we all must do our part to reduce the federal deficit. I do not, however, believe that it is fair to ask the taxpayers of this state to disproportionately reduce the federal deficit,” Bergeson added.

State Sen. John Seymour (R-Anaheim) joined Bergeson and four Democrats in voting for the bill when it was approved, 6 to 0, by the Senate Revenue and Taxation Committee May 15. Sen. Jim Ellis (R-San Diego), the panel’s other Republican member, did not vote.

Although his Department of Finance has expressed opposition to Bergeson’s bill, Deukmejian “has taken no position on it one way or the other,” said Bob Taylor, deputy press secretary.

On most issues, Deukmejian has been one of Reagan’s most loyal supporters among the nation’s governors.

The governor said at a recent press conference that he will speak out against Reagan’s tax simplification plan if, after studying it closely, he finds that it appears to “wind up with most Californians paying more in taxes.”

The loss of the state income tax deduction, however, may be offset by increased exemptions “and the lowering of the tax rate itself,” Deukmejian added.

Bergeson’s bill, said Finance Department spokesman Richard Ray, “tends to manipulate the tax system” and “adversely impacts the federal deficit.”

While Bergeson and her supporters say the state treasury could realize a $100-million bonus by getting some of the $12 billion in anticipated 1986 tax revenues a year early, Ray said that financial gain is uncertain at best. There could even be a loss, he said.

“You start fooling around with these things and then you get your tax law so complicated,” Ray said.

But there is nothing at all complicated about Bergeson’s proposal, counters Dronenburg.

“It’s just a one-time opportunity for us to soften the blow of a thing that’s coming,” said Dronenburg, who is also a Republican. “I don’t think it is going to subvert anything.”

The effect on the federal deficit would be minuscule, Dronenburg added.

Since state law already permits early payment of taxes, some critics have also said that Bergeson’s bill is unnecessary.

But Dronenburg said that whether the IRS would allow the deduction as a good-faith estimate of future taxes falls into “a gray area.”

Bergeson’s bill would eliminate that uncertainty, said Dronenburg, who added:

“If there is anything I’d like to bring to the tax laws of this state, it is some kind of certainty.”