Economists Wary of Wilson Plan : Recovery: They fear the governor’s tax-cutting proposals to spur small-business investment and create jobs might worsen the state’s budget deficit.

Gov. Pete Wilson’s proposals to cut taxes should help spur new investment and stimulate small businesses, but they won’t end the state’s persistent recession or reverse long-term trends siphoning jobs away from California, business leaders and economists say.

Economists cautioned that the tax incentives, though good for business, could exacerbate the state’s impending budget deficit while doing little to redress fundamental economic problems, such as a decline in defense spending and a glut of commercial real estate.

Some economists believe that only a robust recovery on the national level will pull California out of its economic pit. Others say economic development will come only with improvements in public spending for education and infrastructure.

“I think there’s certainly nothing wrong with his proposals, especially . . . the proposal to give tax breaks to small businesses, because they, after all, generate the lion’s share of the jobs,” said Ken Ackbarali, senior economist at First Interstate Bancorp in Los Angeles.

But, he added: “In terms of the immediate effects on the California economy, I don’t think we can expect any miracles, because the southern half of the state is doing quite poorly, and we’re not likely to see recovery there for at least another year.”

In his State of the State message Wednesday, Wilson proposed a long list of tax cuts and incentives to spur investment in small business and create jobs. He also repeated calls for bureaucratic streamlining and workers’ compensation reform and proposed more aggressive marketing of new environmental technology.

Wilson’s advisers said his proposals would create 10,000 jobs. Since the recession began in 1990, the state has lost 800,000 jobs, the Department of Finance estimates.

Wilson’s tax proposals resemble those made by Assembly Democrats, his own task force on competitiveness and the California Business Roundtable.

But those groups focused on a much broader range of issues in addition to tax incentives: cutting health care costs, revamping the workers’ compensation system, streamlining regulations, reforming the civil legal system and increasing public spending for education and training.

“None of these things by themselves can solve our economic problems, but taken together they will help,” said Richard Whilden, who was managing director of the governor’s Council on California Competitiveness, chaired by Peter V. Ueberroth.

Wilson’s proposals include:

- Creation of a tax credit for investors who put their funds into small businesses and keep them there for at least two years.

- An increased research and development tax credit that would be permanent.

- Reinstitution of the so-called net operating loss carry-forward, which would allow businesses to use current losses to reduce future income taxes.

- Implementation of an earnings tax credit or sales tax exemption for the purchase of equipment to spur creation of manufacturing jobs.

- Expansion of a small-business loan-guarantee program with up to $300 million.

“Small business led us out of the last recession by creating three-quarters of all job growth,” Wilson said. “Small business will lead us out this recession too.”

The tax proposals could be costly. And not everyone believes that lowering taxes will create jobs.

Lenny Goldberg, a lobbyist for the California Tax Reform Assn. in Sacramento, said the state has already lost $1.5 billion in revenue because of business tax breaks, “yet the job picture has deteriorated further.”

Goldberg cited an analysis by the Washington, D.C.-based Federal Tax Administrators that shows state taxes here and elsewhere represent 1% to 2% of the overall cost of doing business. Reducing them only “makes a marginal difference,” he said.

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Correspondent Bradley Inman contributed to this story.