Wilson Seeks 15% Income Tax Cut Over Three Years : California: Reduction would be paid for by billions in revenue increases from improving economy, he says. Governor also urges welfare, teacher, lawyer reforms.

Citing an economy on the upswing and a need to keep California an attractive place to live and work, Gov. Pete Wilson on Monday called for an across-the-board income tax cut of 15% and a host of tough reforms for educators, lawyers and welfare recipients.

Speaking to a joint session of the Legislature and a standing-room-only audience in the gallery of the ornate Assembly chambers, Wilson said he proposes to cut income taxes by 5% in each of the next three years for corporations and individuals even as he expects to maintain funding for kindergarten through 12th-grade education and continue to pay down the state’s debt.

“At long last, we’ve begun to see the blooming of a vibrant economic recovery across California,” said Wilson, who engineered the largest tax increase in state history during his first year in office. “Hand wringing has been replaced by cash registers ringing. As sales and payrolls grow, so too do revenues flowing into state government.”

The governor said the tax cut is necessary to prevent businesses from fleeing California, where Wilson’s advisers estimated the tax burden at 19% above the national average--higher than that of any other western state.

“Death and taxes may be inevitable, but not taxes as high as California’s,” Wilson said. “What is inevitable is that California taxes will be death to California jobs unless we lower them.”

An economic advisory panel that recommended the tax cut plan to the governor said the $9-billion cost of the proposal over five years would be offset by an expected $37 billion increase in state revenues generated by an improving economy in the same period.

But despite the economic improvements, the report also said there will continue to be a need for “tough decisions” in preparing the state budget, indicating that Wilson still plans to cut welfare and other programs to pay for the tax reduction. Many of the governor’s specific funding proposals will be announced today when he releases his fifth state budget.

In the State of the State speech, the governor’s task was to recommend legislative remedies for California’s most urgent problems. Most of those remedies called for tough crackdowns that left many lawmakers wondering about bipartisan relations in the Capitol during the upcoming session.

“It was a speech devoted and dedicated to gloom and doom,” said former Assembly Speaker Willie L. Brown (D-San Francisco), who is still negotiating with Republicans about control of the Legislature’s lower chamber. “It certainly didn’t show the vision that one ought to show. . . . He said a whole series of things that were strange for someone who is trying to build a consensus.”

Some of the most controversial reforms Wilson proposed were aimed at traditionally Democratic constituencies--teachers, lawyers and the poor. Wilson’s proposals included:

* An elimination of tenure for teachers and a merit pay system that would remove those who don’t perform well. Wilson would also drop the requirement that teachers be credentialed, saying it has prevented many retired experts from becoming teachers. He also said parents should be allowed to monitor their children’s classes and to choose their schools and teachers.

* A series of tort reforms aimed at cutting costs to businesses and reducing congestion in the state’s court system. Wilson recommended sanctions for those who file frivolous lawsuits, along with greater access to arbitration. The governor also wants a cap on punitive awards of no more than three times the economic damages, with the punitive decision made by a judge instead of a jury. And he recommended mandatory no-fault automobile insurance as a way to reduce premiums and combat insurance fraud.

* New eligibility rules for welfare recipients that would require mothers to identify the fathers of their children and, if there is no danger of abuse, to live in their parents’ homes until they are 18. Wilson also repeated his previous call to limit cash assistance for able-bodied adults to two years.

In his inaugural address Saturday, he described a vision for improving the state’s condition that relied heavily on business growth to solve problems ranging from education to welfare. As a result, his platform included several business-friendly proposals.

One was a constitutional amendment requiring a two-thirds vote of the Legislature for approval of government regulations that add costs to consumers. Another constitutional amendment would relax Civil Service laws that restrict the state’s ability to privatize some of its operations. Both reforms would require voter approval.

Wilson’s half-hour speech was punctuated 31 times by applause from the seated legislators and an audience that included the governor’s 92-year-old father. But the reaction generally was reserved and there were many times when Democrats remained silent.

Decorum for the annual State of the State speech, which began shortly after 5 p.m., called for Wilson to speak from the Assembly podium standing beside the Democratic and Republican leaders of both legislative chambers as well as the state’s constitutional officers.

Brown hosted the event as the presiding officer, even though the Assembly leadership position is still in doubt. Wilson was introduced in brief and formal remarks by Democratic Lt. Gov. Gray Davis.

The governor opened his comments with a reference to the hardships California has suffered in the last four years, notably last January’s Northridge earthquake. As evidence of the mettle demonstrated by quake victims, Wilson pointed out two “heroes” of the tragedy that were seated in the Assembly balcony--a Los Angeles police officer, Henry Izzo, and an emergency room nurse, Mary Morner.

In contrast to the state’s recent troubled years, Wilson said the economy is improving and the tax cut is needed to further the recovery.

The proposal got a mixed reaction from Democrats, with some warning that they are dubious about the governor’s rosy economic forecasts and others complaining that the tax cut is a simple political gimmick. But in the official Democratic response to Wilson’s speech, Davis embraced the idea.

“We Democrats believe hard-pressed working families are entitled to tax relief,” Davis said. “Tax relief must deal honestly with the improving but still fragile financial condition of the state. But we know that any money we can put back in your pockets will help--with your mortgage payments, your children’s tuition, or paying down your credit cards.”

Democrats Brown and Senate President Pro Tem Bill Lockyer of Hayward, as well as Republican leaders Jim Brulte of Rancho Cucamonga in the Assembly and Ken Maddy of Fresno in the Senate, said they were uncertain about the prospects for a tax cut.

But the two Democratic leaders suggested that Wilson should first repeal fees and taxes he has supported in the past, such as college tuition increases, motor vehicle charges and the repeal of the renter’s tax credit.

“The governor has forced 16 tax increases that have totaled $6.5 billion,” Lockyer said. “We should start repealing some of the taxes that he sponsored.”

When fully implemented, Wilson’s proposed tax cut would return about $548 a year to a married couple with two children and an annual income of $80,000. A single taxpayer with an income of $40,000 a year would receive a $285 cut.

Wilson Administration officials also confirmed reports Monday that California’s wealthiest residents might pay more in taxes under the plan than they had expected.

Officials said the plan would delay the expiration of an income tax increase for wealthy residents that was implemented in 1991. Instead of expiring at the end of the year, it would remain in place for another three years, generating an additional $3 billion for the state budget.

Wilson’s tax cut proposal has surprised many who thought the state’s financial condition was near desperate. For the last two years, however, program cuts and an improving economy have allowed the state to take in more money than it has spent, paying down on a debt that remains about $2.8 billion.

Wilson predicted that the debt could be eliminated by 1996, a few months after his tax cut would begin in January.

The ability to cut taxes is also based on a rosy forecast that requires the state’s economy to grow at least 5.9% for each of the next five years. Officials who prepared the governor’s tax cut report said the forecast was conservative since it was based on national assumptions that might be even brighter for California.

Based on that growth, Wilson estimated state revenues would be $37 billion higher in 1999 than they are in 1994.

He recommends that about half that increase be spent on elementary and secondary education--keeping the state in compliance with the requirements of Proposition 98--and about a quarter of it be returned to Californians through a tax cut.

That would leave about $10 billion over the next five years to pay for increases largely in welfare and higher education. Officials said, however, that $10 billion is not enough to maintain current service levels in those areas.

On welfare, the state has already cut the grant for recipients of Aid to Families With Dependent Children by 14% since Wilson took office, much less than the governor has recommended. Still, Administration officials said California has the nation’s fifth-highest welfare grant, down from second place four years ago.

Wilson is expected to recommend further cuts in the cash grants today, but in his address he focused on the role of welfare fathers and on teen-age mothers.

As he did in his inaugural speech, Wilson said fathers play a vital role in the social development of their children. As a result, he proposed a summit meeting on welfare fathers that would look at ways to stop treating them as villains and instead enhance their ability to be role models.

The governor said the AFDC program--which supports poor children--encourages fathers to move out of the house because it often provides cash for mothers only if the father is not at home. He also suggested that the state would seek to improve the access of non-abusive fathers to estranged children.

“Being a father means . . . giving the love and discipline, the nurturing and guidance that young children--especially young boys--need to keep them from the ranks of the thugs who are terrorizing our city’s neighborhoods.”

Times staff writers Jerry Gilliam and Carl Ingram contributed to this story.

* RELATED STORY, SPEECH EXCERPTS: A14-A15

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Wilson’s Major Points

Here are the major proposals that Gov. Pete Wilson made Monday in his State of the State address:

* TAXES: He calls for a cut in personal and business income taxes beginning next year. The reductions would eventually total 15% of current rates, phased in at 5% a year over three years beginning in 1996. A wage earner next year would pay 5% less in state income taxes than he or she pays now, 10% less in 1997 and 15% less in 1998 and thereafter. Wilson estimates that the total tax relief package would save Californians $9 billion over five years.

* WELFARE INTERVENTION: Wilson calls for reducing cash grants to welfare families where an able-bodied adult resides after six months. Grants would be cut entirely after two years, except that benefits would not be cut for children and the adults would remain eligible for food stamps and Medi-Cal. Wilson would require mothers under the age of 18 to live with parents or legal guardians in order to receive welfare benefits, would insist that welfare mothers identify the fathers of their children and would require the fathers to pay child support. He also would require welfare recipients who are going to school to take job training.

* FATHERS SUMMIT: Wilson says he will convene a “Focus on Fathers” summit this year to drive home the responsibilities of men in the raising of their children. He says he will initiate a dialogue to point out to fathers the importance of their role in providing children with love and guidance to teach them right from wrong.

* EDUCATION: The governor wants to rewrite and simplify the state education code to give greater control to local school officials and parents, repeal teacher tenure and replace it with merit pay for the best teachers and create a “parents’ bill of rights” to give parents a greater voice in how schools are run.

* AUTO INSURANCE: “No-fault” insurance policies would replace the current method of insuring drivers. Under no-fault, the insurance company of each party to an auto accident pays the damages regardless of who is at fault. Wilson says the change would reduce fraud and discourage unreasonable lawsuits.

* RED TAPE: Wilson pledges to push a constitutional amendment aimed at cutting the cost of applying for state permits. No new requirements accompanied by “compliance costs” would be allowed without a two-thirds vote of the Legislature. However, related legislation would be allowed to pass on a simple majority vote of the Legislature if the bill included repeal of existing regulatory programs of greater or equal costs.

* LAWSUIT LIMITS: Wilson wants legislation that would hold lawyers accountable for the lawsuits they file, as a means of discouraging frivolous suits, that would provide juries with “reasonable guidelines for making decisions” and that would bar criminals from suing over injuries received during the commission of their crimes.

* CRIME CRACKDOWN: Wilson says he will seek more laws cracking down on criminals, in addition to dozens passed by the Legislature last year. He calls for procedures to place inmates convicted of violent sex crimes in secure mental hospitals after their release from prison until they are no longer a threat. He wants the death penalty for drive-by murderers and car-jacking murderers, and supports limiting federal court appeals by Death Row inmates.