Maddy Proposes Tax Hike of $729 Million : State budget: The Senate’s GOP leader hopes his plan will persuade Democrats to agree to spending cuts.

The Republican leader of the state Senate, hoping to jump-start stalled budget deliberations, Tuesday proposed a plan to raise taxes and fees by $729 million this year.

The proposal by Sen. Ken Maddy (R-Fresno), widely regarded as the Legislature’s most influential Republican, would impose first-ever sales taxes on newspapers, magazines, movies, records and advertising catalogues and brochures; triple fees for state park use and raise fees on a variety of other services. It would also require income tax withholding from contractors and people with capital gains from real estate sales.

By making the proposal, Maddy hopes to shake loose concessions from Democrats, who have been fighting the spending cuts proposed by Gov. George Deukmejian to close a $3.6-billion revenue gap.

While Maddy’s proposal seems likely to be able to generate support from moderate Republicans, at least in the Senate, it faces a difficult course.

It marks the first break in a standoff that has no-tax Republicans lined up on one side and Democrats, resistant to deep budget cuts, on the other.

And it comes less than a week after President Bush rattled Republicans throughout the nation, including the Legislature, by reversing his “read my lips” opposition to tax hikes.

Maddy said Bush’s tax statement “broke the ice in terms of dealing with the realities of a difficult budget problem.”

But he and other Republicans believe that the reversal by Bush came at the worst possible time for California lawmakers trying to resolve their own budget dilemma. Conservatives, including Deukmejian, now are likely to dig in their heels even harder against tax hikes, they believe.

Reflecting the conservatives’ view Tuesday was Assemblyman Tom McClintock (R-Thousand Oaks), who concluded after Maddy released his proposal: “With Republicans like Bush and Maddy, who needs Democrats?”

On the other hand, Democrats figure that if Bush can go along with a tax increase, why can’t Deukmejian? Assembly Speaker Pro Tem Mike Roos (D-Los Angeles) said Tuesday: “Bush was able to unshackle himself (from the no-new-taxes pledge). This governor ought to be able to unshackle himself.”

Maddy said he decided to press for tax and fee hikes because he views that approach as the only way a consensus agreement can be reached on the budget.

The veteran lawmaker said his proposal incorporates “revenue and fee increases that I thought would be palatable to at least a portion of my caucus and a portion of the Assembly (Republican) caucus.”

Maddy unveiled the plan during a private meeting with Democratic leaders. After huddling for an hour, Democrats left the meeting saying they were prepared to draw up a new list of budget cuts.

“We made lots of progress,” Assembly Speaker Willie Brown (D-San Francisco) said.

Senate President Pro Tem David A. Roberti (D-Los Angeles) agreed that Maddy’s proposal was a step in the right direction, but said he did not believe that the plan raises “quite enough” money.

Deukmejian offered no immediate response. A spokesman said Tuesday that the governor had not yet seen Maddy’s plan.

But the governor’s chief of staff, Michael R. Frost, warned as recently as Monday that the President’s stand will make it harder for the governor to support a tax hike. California officeholders who approve a tax hike “are going to be viewed as piling one tax hike on another,” Frost said.

Maddy said he deliberately avoided choosing some of the tax targets being looked at by Bush and members of Congress--such as new levies on motorists--because of Deukmejian’s concern.

Within the last 12 months, the Legislature has approved a quarter-cent sales tax increase to provide earthquake relief and received voter support for a 5-cents-a-gallon gasoline tax increase that will take effect Aug. 1. Add to that the prospects for federal tax increases and a new round of state tax and fee hikes, and Californians get what Sen. John Seymour (R-Anaheim) calls the “triple whammy.”

Seymour, like Maddy and other Republicans, believes the only way even modest tax or fee proposals will survive is if they are accompanied by real cuts in government services, something that Democrats up until now have largely fought.

Maddy, in putting his plan together, borrowed from a list of fee hikes first proposed by Democrats several weeks ago. Maddy’s plan would raise $241 million a year by imposing new or increased fees for a variety of state services, the largest being fees for use of state parks ($75 million), a boost in charges to employers to recover state costs of administering the workers’ compensation system ($60 million), and a hike in the tax charged pesticide manufacturers for support of the Department of Food and Agriculture’s regulatory program.

The sales tax proposals, which are not part of the Democratic plan, would raise another $143 million. They would end long-standing sales tax exemptions enjoyed by newspapers, magazines, movies, printed advertising and records. He said he targeted that group “because there are not many sales tax exemptions left. We are down to a hard-core list.”

Another $275 million would be raised during the current 1990-91 budget year by proposed changes in withholding requirements. Under one, businesses would be required to withhold estimated taxes from payments to contractors. Under the other, escrow agents would be required to withhold estimated taxes on real estate transactions involving out-of-state residents.

Also included in the plan is support for an alcohol tax increase that the Legislature is sponsoring on the November ballot. It would raise $71 million this year if approved by voters.