Brown Ends Campaign for Cut in Sales Tax

Democratic Assembly Speaker Willie Brown scrapped on Wednesday his demand that the $1.1-billion surplus that the state cannot legally spend be returned to Californians in the form of a temporary state sales tax cut.

Brown made the disclosure shortly after he and other legislative leaders met with Gov. George Deukmejian over a luncheon of filet mignon to discuss major issues remaining to be dealt with in the final 1 1/2 weeks of this year’s legislative session.

Deukmejian steadfastly favors an income tax rebate but has indicated a willingness to compromise if an acceptable alternative can be devised. Senate Democrats rejected any reduction in the sales tax on Tuesday.

Dare to Deukmejian

Democrats still hold hope of finding a way to ensure that low-income individuals who do not pay income tax also benefit from the rebate. One plan under consideration would include both an income tax rebate and temporary relief from some sales taxes for financially strapped schools and local governments.

In response to a reporter’s question after the meeting, Brown said he “abandoned” his plan because “I got a sense that I was a lone wolf” and lacked the support to push through a sales tax cut.

When he announced the plan last June to consume the surplus by reducing the sales tax during the Christmas shopping season, Brown was so enthusiastic that he dared Deukmejian, “Try to stop that truck.”

After the second cordial meeting in as many weeks between Deukmejian and legislative leaders of both parties, Brown said it was decided that the governor and party leaders in each house would appoint surrogates to try to fashion a compromise tax rebate bill. “Maybe they can and maybe they can’t,” he said.

Limit on Spending

State government is legally unable to spend the excess funds under terms of a 1979 ballot initiative that placed a lid on government expenditures. The limit took effect for the first time this year.

The initiative requires that revenues collected in excess of the limit be returned to the taxpayers and gives the governor and Legislature two years to devise a way to do so.

Senate and Assembly negotiators, meanwhile, are coming close to an agreement on a major revision of corporate taxes but still have to iron out deep philosophical differences over how to conform individual state income taxes to last year’s sweeping overhaul of the federal tax codes.

Members of a conference committee have tentatively settled on provisions that would give many large and small corporations tax breaks worth more than $2 billion over the next four years, including allowing them to retroactively write off more than $500 million in losses suffered in 1985 and 1986. Those tax reductions would be financed in part by a steep increase in the minimum tax charged to corporations.

For individuals, the conference committee appears unwilling to tax unemployment benefits and part of Social Security payments, as provided for in the new federal tax codes.

On other matters, the conferees are far apart over whether to preserve many popular tax breaks or seek closer conformity with the federal tax bill as favored by Deukmejian.