Honig Will Propose ‘Fair’ Tax Plan That Targets the Wealthy

State Supt. of Public Instruction Bill Honig said Saturday that he will offer Gov. George Deukmejian and the Legislature a tax plan that is “fair . . . and not give big tax cuts” to the wealthy but could pry the state out of its fiscal bind.

Honig warned that unless action is taken by the governor and lawmakers to resolve the projected shortfall of $2 billion in revenue over the next two years, an unintended tax break for the wealthiest Californians would become permanent at the expense of students, the elderly, transportation and other programs.

While refusing to spell out details, Honig said he will offer the proposal to repeal at least part of the surprise windfall tax breaks enjoyed by high-income earners who took capital gains benefits early last year rather than be taxed more heavily under newly enacted laws.

He advanced the proposal only a few minutes after Deukmejian went on the air in his regular weekly radio speech to say voters last Tuesday agreed that “they do not want to raise taxes to fund more government spending.”

Warning From Governor

Deukmejian, who under pressure from Republicans abruptly abandoned his own fledgling $800-million tax increase proposal 10 days ago, has subsequently warned that he will veto anything that even resembled a tax increase.

Deukmejian said voters made “clear that they want to keep a reasonable control on government spending known as the Gann limit.”

Californians defeated two ballot propositions, one backed by Honig and the other sponsored by tax-cutter Paul Gann, to ease government spending restrictions imposed by passage in 1979 of Gann’s own initiative to limit appropriations.

Honig, a potential contender for governor, said in an interview that he will offer a proposal Monday to reduce the size of the tax cut many wealthy Californians inadvertently received under a state law fashioned last year to partially conform California tax law to federal codes. The state statute was supposed to neither increase nor decrease revenue.

Break for Wealthy Assailed

Honig said wealthy individuals should not be allowed to permanently keep all their tax reductions by “stripping existing programs . . . (for) kids, law enforcement, seniors, trauma centers and roads.”

If Deukmejian and the lawmakers do not resolve the issue, he said, the state “will have given a large, unwarranted tax cut to a select group of taxpayers in the higher brackets. Whatever the taxpayers did last Tuesday, they certainly didn’t vote for large reductions in services.”

Honig refused to disclose details of his proposal, but said his plan would seek to reduce the size of the tax cut for the wealthy, who received unexpectedly large capital gains benefits. In effect, they would merely pay back the sum they should not have received in the first place, he said.

Deukmejian earlier offered a similar $800-million solution that he called a “temporary minimal adjustment” but jettisoned it a week later under pressure from state legislators in his own party and concern by the GOP at the national level that it amounted to a tax increase in an election year.

Washed His Hands

Stung by his failure to find anything but a few pockets of support, Deukmejian also washed his hands of endorsing anything that could be perceived as a tax increase. He punctuated that Friday when he made it clear that he would veto any such legislation, even if the plan he had abandoned found new life and reached his desk.

His remedy, Deukmejian said again Saturday, would be to veto the $45-billion state budget down to a level where expenses match revenues. The cuts could total $1 billion or more.

Far out of balance, the budget is pending in the Assembly Ways and Means Committee, where it is unlikely to emerge before Wednesday, the constitutional deadline for the Legislature to send it to Deukmejian. The fiscal year starts July 1, but the state has often begun the new bookkeeping year without a spending program.

In addition to Honig’s plan, two more bailout plans on the table are sponsored by liberal Democrats Sen. Alfred E. Alquist of San Jose and Assemblyman John Vasconcellos of Santa Clara, chairmen of the Legislature’s two budget-writing committees.

Vasconcellos said he will pick up Deukmejian’s jettisoned tax increase and author it as his own, despite certain GOP opposition in the Assembly that could doom it.

The proposal calls for a one-year suspension of the law that prevents a taxpayer from being put into a higher bracket when he or she receives a cost-of-living pay raise, boosting taxes paid by banks and corporations and suspending for a year tax breaks for businesses that lose money.

Alquist proposed raising the top state income bracket to 10.3% from 9.3%. This would produce about $800 million.