Democrats in Senate Offer Negotiable Surplus Plan

Senate Democrats, concerned that time is running out on this year’s legislative session, Tuesday put on the tax rebate negotiating table their plan to return a $1.1-billion budget surplus to a wide variety of taxpayers.

In doing so, they rejected a proposal championed by Assembly Speaker Willie Brown (D-San Francisco) to temporarily reduce the state sales tax during the Christmas shopping season.

Sen. Henry J. Mello (D-Watsonville), author of a Senate-passed tax rebate plan pending in the Assembly, made clear to reporters that the terms of the Senate Democrats’ proposal were negotiable.

Nod to Deukmejian

In an apparent nod toward Gov. George Deukmejian, who favors returning the surplus only to income-tax payers, the Senate Democratic proposal would provide a $28-per-person increase in personal and dependent credits for the 1987 tax year. Mello said this means that a typical family of four would get a $112 reduction in state income taxes next April 15.

This would consume about $560 million in excess funds.

In an effort to boost state financial aid to hard-pressed public schools and local governments, the plan would exempt them from paying sales taxes on purchases from October through June of 1989. It is estimated that schools would save about $88 million while local government entities would net about $142 million.

Senate Democrats, meeting behind closed doors, voted to reject Brown’s sales tax reduction, Mello said. In its place, they endorsed the general concept of providing additional tax credits to such Californians as low-income renters, senior citizen renters and possibly some homeowners who do not pay income taxes.

Trying an Alternative

While Brown and Deukmejian offered their plans to return the budget surplus to taxpayers long ago, Senate Democrats had wrestled to forge an alternative of their own as the clock ran out on the current legislative session scheduled to adjourn Sept. 11.

Faced with reelection pressures next year and what many legislators perceive as a potential campaign issue if some kind of rebate is not enacted, “most of our members want to get this behind us,” Mello said.

He made clear, however, that the Democratic proposal was negotiable and that Senate Democrats wanted to fashion a united front with the Assembly in creating a program that Deukmejian would sign into law.

Mello said the Senate Democrats rejected Brown’s sales tax proposal on grounds that it would provide “inconsequential” relief to sales-tax payers, while it would hand retailers the costly task of reprogramming their cash registers and computers.

Deukmejian has proposed returning the entire $1.1 billion to income-tax payers because they paid about 70% of the surplus. Under his plan, a single income-tax filer would receive a maximum $150, while a couple would receive up to $300 either in a credit or as a cash rebate.

Brown has maintained that a temporary reduction in the sales tax would benefit those people who paid sales taxes but did not pay income tax. More people pay sales levies than income taxes.

The state is legally prohibited from spending the excess $1.1 billion by a voter-approved ballot initiative that set spending limits on government and school districts. The law provides that sums which exceed an expenditure formula based on inflation and population growth must be returned to taxpayers.