$1-Billion Hike in State Income Taxes Proposed

Democratic chairmen of the Legislature’s two budget committees, declaring that the state is broke because of an error made in 1987 tax legislation, Wednesday proposed a $1-billion annual increase in income taxes to stave off deep cuts in health and welfare programs and correct the mistake.

The proposal, sure to generate the opposition of Republican Gov. George Deukmejian and his GOP allies in the Legislature, would increase the maximum income tax rate for upper-income Californians from 9.3% to 11%, a hike that would generate about $780 million annually. The proposal would also increase income taxes paid by corporations by $300 million to $350 million annually.

The two lawmakers, Sen. Alfred E. Alquist, chairman of the Senate Budget and Fiscal Review Committee, and Assemblyman John Vasconcellos, leader of the Assembly Ways and Means Committee, said the proposal would simply restore tax rates to 1987 levels and correct errors made in a tax-adjustment bill enacted that year that inadvertently reduced tax collections by at least $800 million.

Alquist, defending the proposal at a Capitol press conference, said that when the tax bill was enacted to bring state codes into conformity with 1986 federal tax changes, the state counted on receiving “hundreds of millions of dollars in expected revenues that never materialized.”

The 1987 tax bill reduced the top income tax rate from 11% to 9.3% and made a series of other changes closing various tax loopholes and eliminating some traditional tax deductions. Lawmakers had hoped that reduction in income tax rates would be offset by revenues gained from closing loopholes, but the money never came in as expected.

Alquist called the tax bill “a gift to the richest 10% of the people in the state.”

Deukmejian made a proposal of his own to make up for the lost revenues last year but quickly withdrew it in the face of opposition from lawmakers from both parties.

Michael R. Frost, Deukmejian’s chief of staff, said Wednesday that chances of the governor supporting the latest measure are “zero--or less.”

Alquist and Vasconcellos, each of whom represents a San Jose legislative district, said the governor’s proposed budget of $47.8 billion is about $1.5 billion short of what is needed to maintain the level of goods and services the state provided this year.

As a result of the revenue shortage, Deukmejian has proposed freezing monthly payments to nearly 2 million individuals and families receiving welfare benefits and Social Security income supplements and called for cuts in various other health, welfare and youth services programs.

Alquist and other Democrats have already moved to restore the cuts and have begun retaliating by proposing reductions in some of Deukmejian’s pet programs, such as the state Office of Tourism and the Rural Renaissance program.

The two lawmakers were joined at the press conference by officials representing community-based groups who fear that the governor’s proposed budget cuts will have serious consequences on the poor.

Peter Schilla of the Western Center on Law and Poverty said that the proposed cuts “will cause enormous suffering for needy families with children, the aged, blind and disabled, the sick and homeless.”

Schilla added, “These cuts in survival programs for the poor are unacceptable in a modern, civilized society, especially when the 1987 miscalculated tax boon for the rich, which has caused the shortfall leading to the cuts, is left uncorrected.”

In other action, the Senate Revenue and Taxation Committee approved a proposed constitutional amendment that would repeal key provisions of the spending limit that has restricted government expenditures in recent years.

The proposed constitutional amendment, sponsored by Sen. John Garamendi (D-Walnut Grove), was approved on a 6-2 partisan vote after Democrats reached agreement with state Supt. of Public Instruction Bill Honig on amendments to allow schools a greater share of tax revenues than they otherwise would have received.