Not a Tax Hike, Governor Says of Revenue Plan

Gov. George Deukmejian went on statewide radio and television Thursday to outline his plan to raise tax revenues, promising he would preserve the lower tax rates enacted last year but would propose “temporary minimal adjustments.”

He cracked a joke at one point, saying, “There’s about as much chance of me raising taxes as there is the White House throwing a book party for Don Regan,” referring to President Reagan’s former chief of staff who recently published a controversial and unflattering account of his years in the Reagan Administration.

Neither Deukmejian nor his staff offered any details of the governor’s tax plan, saying that there will be a formal briefing today on his program to deal with the state’s anticipated loss of as much as $2 billion in income tax revenues over the next 14 months.

But as word about the governor’s plan circulated in the Capitol Thursday, Republican legislators confirmed reports that a key part of Deukmejian’s plan is a proposal to raise income tax revenues by about $400 million by freezing tax brackets at their present levels rather than allowing them to be indexed to inflation.

Indexing was enacted to prevent taxpayers from being forced into higher brackets simply because they receive pay raises to cover the costs of inflation.

Assembly Republican Caucus Chairman Dennis Brown of Signal Hill, vice chairman of the Assembly Revenue and Taxation Committee, called the proposed freeze on tax rates the same thing as a tax increase.

‘Money Out of Pockets’

“They don’t like to talk about it like it’s a tax increase but, quite frankly, they are taking more money out of the pockets of the working men and women of California than they would otherwise. A lot of us are going to have a difficult time supporting a package that increases revenues by taking it out of the pockets of working men and women,” Brown said.

About the only detail Deukmejian was willing to release during his talk, which was taped in his Capitol office and beamed to radio and television stations via satellite, was that his plan will reduce spending in his proposed $44.3-billion budget for the next fiscal year by 1% for most state programs. The governor said that will still allow the budget to grow by 8.5% over current spending.

The Republican governor said that, in considering budget cuts, a top priority will be to protect priority programs such as education.

As for taxes, he explained that action to make up for the $1-billion-a-year revenue shortfall is necessary because of an apparent “miscalculation” in sweeping tax legislation he signed last year.

Experts Puzzled

Deukmejian said tax experts are still uncertain about what caused such a big drop in revenues, so he is willing to propose only “some temporary minimal adjustments to the tax reform law.”

The Times reported Thursday that the governor, in a briefing to Republican legislators late Wednesday, spelled out a plan that would freeze income tax brackets and motor vehicle fees, require $500 million in budget cuts, raise bank and corporate taxes by $250 million, reduce his proposed budget reserve from $1 billion to $700 million, and base next year’s spending plan on optimistic revenue forecasts that envision the state treasury growing by an additional $400 million because of a healthier-than-expected economy.

Republican lawmakers said Thursday that the proposal to freeze motor vehicle license fees for one year was discussed but ultimately rejected by Deukmejian.

Deukmejian Press Secretary Kevin Brett on Thursday denied that the governor’s plan included raising bank and corporate taxes by $250 million. But the spokesman acknowledged that the governor might sign such a tax hike if it were sent to him by the Legislature.

Garamendi Bill

Other Republicans said that legislation to raise bank and corporate taxes, carried by Sen. John Garamendi (D-Walnut Grove), is indeed part of the overall plan. One GOP source, who spoke on condition that he not be identified, said the governor’s strategy is for the bill to move through the Legislature “with as few Republican fingerprints on it as possible.”

Senate Republican Leader Ken Maddy of Fresno confirmed, “We are talking about the tax conformity bill that Garamendi is carrying. It raises $250 million.”

Garamendi, upon hearing this, accused Republicans of trying to dump responsibility for tax-increase legislation on Democrats and said he would have no part of it. Like the governor, Garamendi sought to distance himself from any talk of a tax increase. The Democratic senator said he plans additional amendments to provide as many tax cuts as tax increases for businesses, so that overall the measure would be “revenue neutral.”

“There is no tax-increase bill that any Democratic senator has introduced. If the governor wants a tax-increase bill, he can ask for it, but at the present time, there is no tax-increase bill,” Garamendi said.

Honig’s Stand

While Democrats and Republicans were trying to avoid being labeled as tax raisers, state Supt. of Public Instruction Bill Honig declared that a tax increase is entirely justified.

Honig complained that Deukmejian’s plan, by temporarily adjusting tax rates and making budget cuts, is basically giving a break to taxpayers who received an unanticipated $1-billion windfall this year in the form of income tax cuts.

“We gave taxpayers an inadvertent tax windfall. Somebody has to make up for that. By making budget cuts, the governor is basically saying that government programs will have to eat the loss,” Honig said.