Senate OKs Disability Tax Increase : Finances: Backers say the compromise bill is needed to prevent a cut in state checks to sick and injured workers.

Seeking to avert a threatened Feb. 1 reduction in payments to sick and injured workers, the Senate voted Thursday to require California employees to pay another $514 million in withholding taxes for disability insurance coverage.

Under the compromise bill drafted by Gov. Pete Wilson’s aides and agreed to by organized labor and manufacturers, the maximum payroll withholding rate would increase April 1 to 1.4% from the newly imposed 1.3% rate that took effect Jan. 1. Before then, the rate was 1.25%.

For California workers paying the maximum rate, the increase would take another $1.20 from their weekly paychecks. Additionally, the taxable wage ceiling would be raised to $34,000 from $31,767.

Republicans and Democrats conceded that the proposed higher rates would be a tax increase on workers who have been under economic stress during the deep California recession. But Democrats insisted that they had no choice if they were to avoid a stiff cut next month in maximum weekly benefits, from $336 to $266.

The bill narrowly cleared the Senate on a 27-7 vote, the bare two-thirds majority required in the 40-member chamber. The negative votes were cast by Republicans, who said they wanted no part of a tax increase.

The future of the bill, carried by Sen. Patrick Johnston (D-Stockton), is uncertain in the Assembly. Conservative Assembly Republicans, despite their minority status, carry substantial clout in deciding the outcome of legislation requiring a two-thirds favorable vote. “It’ll be tough in the Assembly,” Johnston said. “It’s iffy.”

Unlike workers’ compensation and unemployment insurance, which is paid for by employers, disability insurance coverage is financed solely by employees. It covers ill and pregnant workers who cannot work and employees who suffer injuries unrelated to their jobs.

The program is believed likely to be insolvent at year’s end; in the last few years premiums have not kept pace with higher than expected claims and improved benefits.

The compromise bill also would scale back certain other benefits. For instance, the first seven days of a worker’s disability would not be covered in 1993. This would save an estimated $307 million.