Head of Senate Budget Committee Says State Tax Boost Is Inevitable : Finances: Alquist gives his assessment after hearing analysts say California will be $5 billion to $6 billion short of necessary funds over the next 18 months.

The chairman of the Senate budget committee said Monday he sees no way to balance next year’s state budget without a tax increase, but the tax question appeared to divide other lawmakers and public officials.

Sen. Alfred E. Alquist (D-San Jose), head of the Senate Budget and Fiscal Review Committee, commented on the need for a tax increase after a hearing at which top fiscal analysts agreed that the state will be $5 billion to $6 billion short of the money needed to pay for state services over the next 18 months.

“It’s an almost obvious fact that this budget will not be balanced without additional revenues,” Alquist said after the hearing. He said he wants the Legislature to consider raising the top rate of the personal income tax from 9.3% to 11%, where it stood in 1987 before the Legislature reduced it. Such an increase would raise about $2 billion annually.

Democrats, Alquist predicted, “will be dragged reluctantly into supporting revenue increases, as painful as that might be politically.”

The budget committee hearing was convened to discuss proposed legislation to implement lame-duck Gov. George Deukmejian’s $1-billion emergency budget reduction plan. Deukmejian, who will turn over the reins of state government to fellow Republican Pete Wilson in January, has stubbornly resisted tax increase proposals of the size suggested by Alquist. Democrats are hoping that Wilson, who has been noncommittal, will prove to be more flexible.

Lawmakers did not vote on any elements of the governor’s plan during the three-hour hearing. Alquist’s position drew support during the hearing from Sen. Nicholas C. Petris (D-Oakland) and state Supt. of Public Instruction Bill Honig.

Other legislators voiced strong opposition after fiscal analysts released a chart showing that individuals and couples with annual taxable incomes of $60,000 or more--about 12% of taxpayers--were paying 70% of the income tax. The analysts noted that much of the current problem was because of the downturn in the economy, which is producing unemployment and business failures.

Sen. Wadie P. Deddeh (D-Bonita), chairman of the Senate Revenue and Taxation Committee, asked: “At a time when we are facing unemployment of 6.7% in California, at a time when we are in a state of recession, is this the time to raise revenue and tax the people who are actually feeling the pinch?”

“We ought to begin with cuts, real deep cuts,” Deddeh said, warning other Democrats, “I should not be counted on to vote for any type of tax increases.”

Honig argued that during the 1980s, tax policies pushed by then-President Ronald Reagan primarily favored corporations and upper-income people. Honig was backed by Petris, who said, “In spite of the moaning and groaning, the people on the top never had it so good . . . and the people on the bottom never had it so bad.”

Sen. John Seymour (R-Anaheim) and Honig got into a spirited exchange after Honig argued for a boost in income taxes to head off cuts in school programs.

“Are you suggesting . . . that 12% of the taxpayers who are currently paying 70% of the taxes should pay more? Is that what you are saying?” Seymour asked.

“Absolutely,” replied Honig. “Of course, they are paying more. They get most of the income.”

“They would say they have already gone up too high,” Seymour shot back.

Budget analysts said the current problem stems from failure of the tax system to produce revenues fast enough to keep up with fast-growing student enrollments, prison inmate populations, health costs and bonded indebtedness.

Jesse R. Huff, director of the Department of Finance, blamed the problems on the downturn in the economy and requirements to provide state services that have been built into state law, which he described as “a structural problem.”

The structural problem, Huff said, is that demands for services, most of them because of legal and constitutional mandates, are going up at a rate of about 12% while California’s tax system is growing at a rate of about 5%.

Gail Greer Lyle, executive director of the Commission on State Finance, said the imbalance between spending requirements and tax receipts could leave the state $5.7 billion to $6.2 billion short of what will be needed to pay for state services over the next 18 months. Previously, she had pegged the shortfall at $4.3 billion.