Wilson Budget Encounters Serious Trouble in Senate : Politics: Democrats want governor to revise his plan, back a $1.4-billion income tax hike aimed at the wealthy.

Gov. Pete Wilson’s budget appeared to be in serious trouble in the Senate Thursday with majority-party Democrats saying they are unwilling to go forward with the governor’s plan to cut welfare grants and establish new taxes on candy, snack foods, newspapers and magazines.

Senate President Pro Tem David A. Roberti (D-Los Angeles), after a closed-door meeting with fellow party members, said Senate Democrats instead will push the Republican governor to negotiate a minimum $1.4-billion income tax increase aimed at California’s wealthiest taxpayers. Wilson has said he opposes any increase in the income tax.

In spelling out his terms, Roberti said that the first bill in Wilson’s $1.7-billion tax-increase package is being put on hold because lawmakers believe it addresses only a small part of the budget problem.

The bill in question would impose a 6%-to-7% sales tax on candy, snack foods, newspapers and periodicals and raise about $300 million annually. But Roberti said that with the budget short by $7 billion to $10 billion over the next 17 months, the candy bill would hardly dent the problem. Wilson also has proposed boosting motor vehicle license fees, increasing taxes on alcoholic beverages, reducing renters’ tax credits and imposing new income tax withholding requirements on independent contractors and others.

The only realistic solution, Roberti said, is a much broader tax increase.

“The members want to move, but they want to move in a comprehensive fashion, both on whatever cuts there are and whatever revenues that have to be raised. There wasn’t too much excitement about moving one thing without the other,” Roberti said.

The Senate Appropriations Committee, which had been scheduled to act on Wilson’s tax bill Thursday, delayed the vote indefinitely. Virtually all of the action on Wilson’s budget plan has taken place in the Senate. The Assembly has yet to move on any of the governor’s proposals.

Wilson wants to get a jump on the budget problem by enacting a first round of tax increases and budget cuts by April 1. That way, Wilson has said, he can get the new taxes and reduced spending in place in time to help offset the $1.9-billion shortfall projected for the remainder of this fiscal year, which ends June 30.

California’s AAA credit rating has been put in jeopardy by the size of the projected shortfall. Standard & Poor’s, which placed California on its “credit watch,” said it was concerned that Wilson’s budget plan did not go far enough in raising taxes or cutting spending.

Bill Livingstone, Wilson’s press secretary, said the governor still hopes to get the bills enacted by April 1. “If we act now we will make sufficient savings to balance the budget without further taxes or further cuts. Not taking action early just compounds the problem,” Wilson’s spokesman said.

As part of the first round of budget-balancing moves, Wilson has asked the Assembly and Senate to approve legislation imposing fees on parents of mentally retarded children for services they receive, pass the bill taxing candy and other items and roll back basic welfare grants to women and children in the Aid to Families With Dependent Children program.

Livingstone said it was his understanding that Roberti had not ruled out the possibility of early action.

But Roberti’s comments, along with those of other Democratic legislators knowledgeable about the tax bill, made it clear that majority-party lawmakers expect Wilson to make significant movement away from his position against an income tax increase.

Roberti also made it clear that Democrats are strongly opposed to two other Wilson proposals--the one to cut welfare grants and another to sharply curtail renter’s tax credits--and would consider them only if paired with a large income tax increase.

The Senate leader said Democrats want the top rate of the state income tax returned from 9.3% to 11%, but just for taxpayers earning $100,000 or more and couples making more than $200,000. The top rate was lowered to 9.3% in 1987 for couples with annual incomes over $50,000, largely to conform with a major overhaul in the federal income tax system.

Sponsors of the 1987 legislation argued that the revenue loss caused by lowering the top rate would be offset by other features of the sweeping tax bill, including elimination of many deductions and abandonment of a lower capital gains tax on investment income. Critics say the elimination of the deductions did not offset the entire revenue loss and is contributing to the current budget problem.

Roberti said the 11% top rate was “removed three years ago when times were good. But times aren’t good anymore and people who make over $100,000 a year should pay their fair share.”

Contrasting Wilson’s plan to cut welfare grants and reduce renter’s credits with his refusal to support an income tax hike, Roberti aimed a partisan blast at Republicans.

“I don’t know why the Republicans always seem to want to tax the average person before the rich get hit,” he told reporters. At another point he said, “We are going to be as vigorous in protecting the average citizen as Republicans are in protecting the wealthiest of citizens.”

Roberti added, “We want to make sure that the burden of these bad times are shared by everybody . . . and not just renters and poor mothers who are raising kids on their own.”

Roberti, however, made it clear that he was not flatly rejecting Wilson’s plan for special taxes, but that it would have to be considered as part of a broader tax package.