$2.3-Billion Tax Increase Urged to Fight State Deficit


Democratic budget and tax committee chairmen, setting the stage for a showdown with Gov. George Deukmejian and Republican legislators, unveiled a plan Tuesday to raise state taxes $2.3 billion annually to head off a potential budget deficit.

The tax proposals would hit affluent Californians the hardest.

By outlining what would be the largest state tax increase in recent years, the two committee chairmen were first out of the blocks with a concrete plan to close a $3.6-billion funding gap.

The proposal follows passage of Proposition 111, the gasoline tax increase measure approved by voters in the June 5 primary election and seen by many lawmakers as a signal that Californians are willing to pay more for government services if a case can be made that the money is necessary.


The new tax plan was proposed by Sen. Alfred E. Alquist (D-San Jose), chairman of the Senate Budget and Fiscal Review Committee, and Assemblyman Johan Klehs (D-San Leandro), chairman of the Assembly Revenue and Taxation Committee.

The cornerstone of the plan would raise the top personal income tax bracket back to 11%. The top bracket was lowered to 9.3% in 1987 as part of a major restructuring of state tax codes triggered by changes in federal tax law enacted in 1986.

“It was a mistake. It’s time to admit it was a mistake,” Klehs said.

Restoring the 11% bracket for single taxpayers with incomes of $100,000 a year and couples filing joint returns on incomes of $200,000 or higher would generate $1.1 billion in new tax revenues, Alquist and Klehs said.


Ten other measures in the Democrats’ tax package, which include a sales tax on candy, a new tax on oil and reduction in amounts businesses can write off for business lunches, would add another $1.2 billion, the lawmakers said.

They said the rest of the $3.6-billion deficit would be closed by reductions in the size of the proposed budget reserve and a 5.2% across-the-board cut in various state programs.

Klehs said he and Alquist came up with the plan at the urging of their Democratic colleagues as an alternative to deep cuts being suggested by Deukmejian. Those cuts would hit hardest at human services programs providing aid to welfare recipients, the elderly, the mentally ill and others who benefit by health and welfare programs.

Klehs said high-income taxpayers, oil companies and corporations that provide executives with “three-martini lunches” were targeted because they were the chief beneficiaries of tax changes in 1986 and 1987.


In comments reflecting the spirit of the proposal, Klehs told reporters during a Capitol news conference: “The state of California should not be subsidizing their (business) lunch. We should be subsidizing the lunches of poor people, people who are in need, people who are on limited incomes, and not wealthy people who simply write it off.”

Klehs said the proposal will be amended into a bill carried by Alquist and will be heard first in the Senate.

Indicating that it will face rough going, Assemblyman William P. Baker (R-Danville), vice chairman of the Assembly Ways and Means Committee, said: “The governor and Republicans are adamantly opposed to any new tax increases, and I don’t expect to see any in the (budget balancing) package. . . . I don’t think soaking the few is going to balance the state budget.”

Baker said Republican consensus was forming around the idea that the budget problem can be solved through budget cuts. Republicans contend that the problem stems from the fact that, while state revenues are growing by a relatively healthy 7%, various legally required health and welfare entitlement programs and other costs are driving up expenditures at an annual rate of 11%.


“We are going to reduce our spending back to the 6% or 7% level that we can afford. It is going to be painful, but we are going to do it,” Baker said.

Drafts of a new state budget in the Assembly and Senate put the spending and taxing package in the $56-billion range, but they are badly out of balance, containing far more in proposed services and programs than the state can afford under the current tax structure. Similarly, the $53-billion budget proposal being pushed by Deukmejian works only if Democrats agree to make up nearly all of the $3.6-billion shortfall through budget cuts.

So far, the governor and top legislative leaders have indicated a willingness to talk about tax increases but have shied away from suggesting or endorsing concrete proposals.

However, Deukmejian has indicated he is opposed to the kind of proposal outlined by Klehs and Alquist. Michael R. Frost, Deukmejian chief of staff, said the governor believes a large tax increase, without changing laws that are driving up costs at an 11% annual rate, would be like “pouring gasoline on a fire.”


Assembly Speaker Willie Brown (D-San Francisco) was noncommittal when questioned about the Klehs-Alquist proposal. “I don’t know where it will go, but it’s certainly worthy of dialogue,” he said.

Klehs said Republican criticism of his plan reflects a desire by GOP lawmakers “to find $2.8 billion in revenue without pain. I don’t think the enormity of the problem has even begun to set in with the governor and Republican legislators.”