Governor Has Mixed Views on Tax Reform

Gov. George Deukmejian praised President Reagan’s tax simplification plan as “a good beginning” Saturday but said he is concerned that it could hurt California’s agriculture and timber industries.

“Any plan that could save individual California taxpayers $3.1 billion a year is worth our encouragement and our good-faith effort to improve upon it,” Deukmejian said in his weekly radio address.

The governor’s talk, broadcast primarily in rural areas of the state, was his most definitive statement on the Reagan tax plan. He had said earlier he would withhold judgment on the proposal while a now-completed analysis by the state Department of Finance was prepared.

Reagan has proposed an overhaul of the federal tax system that would reduce individual tax rates and trim to three levels the current system of up to 15 tax brackets. It also would increase allowances for individual exemptions while eliminating deductions for state and local taxes.

“In general, I look favorably upon the President’s good beginning in the tax reform debate,” said Deukmejian, a longtime Reagan backer. “But, it is only a beginning. The plan faces a long and uncertain future in Congress.”

The study by the state Department of Finance, Deukmejian said, shows that individual California taxpayers would save a total of $3.1 billion but that the state’s corporations would be hit with $2.2 billion more in tax payments.

That would mean “a net federal California tax cut of $900 million,” Deukmejian said. “The overwhelming majority of California taxpayers would benefit from the President’s plan in its current form.”

The governor also said he is worried that the tax plan could harm state industries that are facing tough economic times.

“As the congressional debate goes forward, I may express my concerns about several provisions in the plan which could have an unintended negative impact on key job-creating industries which are unique to California, such as agriculture and timber,” he said.

Last week during a two-day swing through Northern California, Deukmejian met with cattle ranchers in Alturas and timber industry leaders in Loyalton who said that Reagan’s proposed changes in capital gains and depreciation provisions could severely harm their businesses.

Later, Deukmejian told reporters that even before those meetings he had telephoned Treasury Secretary James A. Baker III to request changes in those parts of the plan that would hurt California industries.

The Reagan proposal has come under criticism from governors of other states that, like California, levy high income tax rates. They argue that the proposed elimination of the federal deduction for state and local taxes would increase the tax burden for their residents.

But, Deukmejian said, the President’s proposal would help individual taxpayers by lowering federal tax rates, doubling the deduction for dependents and increasing some contributions to individual retirement accounts.

“For most taxpayers, these benefits would more than make up for the loss of the deduction now allowed for state and local taxes,” he said.