Governor Seeks Indexing Freeze to Recoup Tax Loss : Welfare Cuts Also Proposed

Gov. George Deukmejian’s plan to erase a surprise tax shortfall that could hit $2 billion over two years was unveiled today. It envisions increasing tax revenues by $800 million and cutting the growth in state spending by $300 million.

The plan calls for a one-year suspension of the indexing mechanism that protects income taxpayers from automatically being forced into higher tax brackets when they receive cost-of-living pay increases. That would increase revenues by an estimated $410 million.

The governor also proposed a one-year suspension of a provision under which banks and corporations can carry forward their losses for three successive tax years. Deukmejian said this suspension would provide $140 million.

State Finance Director Jesse R. Huff, who briefed reporters on the governor’s plan, said it also anticipates legislative passage of a Democratic-sponsored bill that would raise bank and corporation taxes by $250 million. Huff said Deukmejian will sign the measure if it passes.

The finance director said the spending cuts will include trimming cost-of-living increases for welfare recipients in the Aid to Families with Dependent Children program.

Anticipates Resistance

Apparently anticipating a potentially unfavorable reaction from the public to the complex proposal, the Administration also scheduled meetings throughout the day with reporters to explain the budget-balancing plan.

Huff persistently refused to term the governor’s plan a tax increase, insisting merely that “taxpayers will receive less of a windfall” than they did under a tax conformity plan adopted last year.

On Thursday, Deukmejian, in an address taped for television and radio broadcast, blamed “a miscalculation in last year’s tax reform package” for the problem and promised that this fiscal year would not end in a deficit.

The governor said he has solved the problem “in a way that protects California’s fiscal integrity and the underlying principles of our Administration: better schools, improved state services, fiscal responsibility, no general tax increases and a prosperous economy with plenty of jobs.”

The address was a tactic that Deukmejian has used frequently: He makes major announcements in statements taped for television without releasing details and firm figures to reporters and without being available to answer questions.

As before, he used the expression “no general tax increase,” while leaving open the possibility of increased special taxes, tax collection speedups or increases in fees.

Experts Summoned

State fiscal experts learned in April that state income taxes fell $1 billion below predictions. A working group of experts convened by Deukmejian concluded that the shortfall could occur again during 1988-89--creating a potential $2-billion problem.

Deukmejian insisted that the “temporary minimal adjustments to the tax reform law” that he is proposing would not be a tax increase, but would keep “the new low tax rates” in the law passed last year.

“In fact, there’s about as much chance of me raising taxes as there is the White House throwing a book party for Don Regan,” he said, referring to President Reagan’s former chief of staff who has written a book critical of the President and his wife.

However, the adjustments he is proposing would result in many California taxpayers paying more for 1988 than they did for 1987, when the tax conformity law apparently gave them an unexpected $1-billion tax cut.