Demonstrators Call for Tax Boost for Wealthy : Revenue: Fight over huge budget deficit builds as about 1,000 opponents of service cuts march in support of Democrats’ proposal.

“Tax the rich!”

That phrase was the rallying cry behind a demonstration by more than 1,000 school teachers, students, public employees and others outside the state Capitol Tuesday.

With the state facing a $14.3-billion deficit, opponents of further cuts in funding for schools and human service programs announced an all-out push for legislation--backed by Democrats and opposed by Republicans--that would increase income taxes for the wealthiest 1% of Californians.

Jack Henning, executive secretary-treasurer of the California Labor Federation, AFL-CIO, in a speech that drew wild applause and cheering from a big noontime crowd under a hot sun, said:

“Better to soak the rich than to soak the school children of California . . . better to soak the rich than to soak the disabled and the handicapped . . . better to soak the rich than to soak those who have not.”

In speaking of “the rich,” these groups mean individuals with annual taxable incomes of at least $100,000 and couples with incomes of $200,000 or more. They are the targets of the Democrat-backed legislation that could raise $1.3 billion in 1991-92 and another $1 billion the following year by raising the top income tax rate to 11% from 9.3%.

Pressure to enact such a plan was stepped up in the wake of Monday’s announcement that the potential budget deficit had widened by $2 billion.

Henning called Gov. Pete Wilson’s desire to use more budget cuts, rather than tax increases, to reduce the deficit “a matter of rage.”

“Let our rage be heard by those within this Capitol,” he shouted to rally supporters. At the event sponsored by the California Federation of Teachers, demonstrators waved placards carrying slogans such as “Californians Pay When the Rich Don’t” and wore buttons proclaiming “Fund Schools Today or Prisons Tomorrow.”

Rally organizers said the protest was a backlash to federal tax breaks given the wealthy under President Reagan, followed by state income tax rate reductions, during the 1980s.

In 1987 the Legislature, going along with Reagan’s tax policy, reduced the top state income tax rate from 11% to 9.3%. It also eliminated some tax breaks for wealthier individuals, such as favored treatment of capital gains income. At the same time, poorer taxpayers benefited from the Legislature’s decision to raise the threshold for taxation. Currently, couples earning $24,000 a year or less pay no state income tax.

Senate President Pro Tem David A. Roberti (D-Los Angeles), speaking at the end of the rally, drew boos from the crowd when he noted that Wilson, as part of his budget proposal, wants to reduce the renter’s tax credit.

Wilson, Roberti said, wants to “take $60 from each renter. . . . In the meantime, the Administration hasn’t called upon the wealthy of the state of California to pay one red extra cent. The rich in the state of California have to pay their fair share of taxes.”

When asked if the rally wasn’t fostering class tensions, one of its organizers, Stephen K. Hopcraft, said, “They have been making class warfare on us for a long time--only now we are fighting back.”

Another organizer, Rose King, said polls consistently show that Californians favor higher taxes for the wealthy.

The legislation carried by Assemblyman Johan Klehs (D-Castro Valley) that would raise the top rates on the wealthiest taxpayers already has cleared the necessary committees and awaits action by the full Assembly. Similar legislation, also carried by Democrats, is moving in the Senate.

So far, Wilson and Republicans have refused to budge in their opposition to raising income tax rates. Wilson has proposed a package of $7 billion in tax increases built around a 1 1/4% increase in the sales tax. If they hold ranks, Republicans control enough votes in the Assembly to block passage of the tax bills.

Monday’s announcement of the higher deficit figure was expected to increase pressure on Republicans to drop their opposition to an income tax increase and on Democrats to soften their opposition to the deep budget cuts demanded by Wilson.

But on Tuesday, few positions seemed to have changed.

Assembly Speaker Willie Brown (D-San Francisco), during a press conference, expressed doubt that the budget problem could be solved by June 1, a date set by Wilson. If the governor’s proposed sales tax increase is not enacted by then, the state will lose $350 million in projected revenues for the month of July.

Brown suggested that the budget problem is now so big that Wilson and the Legislature should consider carrying the deficit until June 30, 1993, before paying it off. That would mean three consecutive years of deficits.

Giving a Republican view, Assemblyman Pat Nolan (R-Glendale) said, “The real problem is not a lack of revenue, the real problem is that government has grown so fast it is out of control. The state raised taxes $2 billion last year, and yet we are in a deeper hole than ever. Raising taxes doesn’t solve the problem. We need to bring spending under control.”

Spokesmen for business groups took exception to the complaint that the rich are not paying their fair share, noting that several studies have shown California to have the nation’s most progressive income tax system.

Fred Main, a tax analyst for the California Chamber of Commerce, said about 2 million personal income taxpayers are partnerships and small businesses that create the jobs that keep people employed. He argued that a substantial hike in the tax would jeopardize job growth.

Times staff writer Jerry Gillam contributed to this article.