Wilson’s Tax Cut Plan Fails 1st Test : Finances: Bill to lower personal and business levies is rejected in Assembly committee. A second measure awaits action in Senate.

In what promises to be a long fight, Gov. Pete Wilson on Monday lost the first round in his effort to initiate a 15% state income tax cut when an Assembly budget committee defeated his proposal for lack of one Democratic vote.

“I don’t believe this bill is dead yet,” Assembly Republican leader Jim Brulte of Rancho Cucamonga told reporters after the defeat in the highly partisan Assembly Revenue and Taxation Committee.

Wilson’s press spokesman, Sean Walsh, said the governor still intends to fight for the tax cut, which would reduce revenues to state government by about $7.6 billion over the next three and a half years.

In the state Senate, a bill virtually identical to the one defeated Monday in the Assembly is awaiting a hearing. Some legislative sources have suggested that if a compromise is ultimately fashioned, it probably will happen in the Senate.

The proposed tax cut is a major component of Wilson’s 1995 state agenda and a cornerstone of his budding presidential campaign.

Wilson last week promised that, should the Legislature turn down his proposed tax cut, he would put the issue before voters in the form of an initiative on the November, 1996 ballot.

“We expect to be successful legislatively, but if we fail, you’ll see a tax cut on the ballot and a few less legislators in Sacramento, meaning they’ll be thrown out on their butts,” said Walsh.

The bill needed at least six committee votes for approval, but received only five--all from Republicans. Three Democrats voted against the measure, while two others did not vote.

Brulte announced that he will seek reconsideration of the committee’s action, probably this summer, if Republicans win sufficient special elections to capture majority control of the Assembly. The lower chamber is split 39-39 with one independent and one vacancy, a formula for legislative gridlock.

The governor’s tax cut proposal was recommended by a private group of economists he appointed last year. They predicted that the state’s economic rebound would be robust enough that income taxes for individuals and businesses could be cut by 15%. Further, they said that the tax cut would stimulate California’s economy and that businesses would “reinvest” their tax savings in job-producing enterprises.

However, nonpartisan Legislative Analyst Elizabeth G. Hill and state Controller Kathleen Connell, a Democrat, have warned that the state’s long-term outlook may not be as bright as Wilson and his financial advisers believe.

For example, Hill reminded the committee Monday that the state faces a projected budget gap of almost $2 billion as of July 1, the start of the fiscal year. She also warned that the new budget is threatened for other reasons as well, including more than $3 billion the state owes from losing a series of major lawsuits.

Assemblyman Phil Isenberg (D-Sacramento), a state budget expert, compiled his own list of potential revenue shortages and warned that “we might be as much as $6.5 billion in the hole.”

Some citizens who viewed the committee hearing on a special statewide television presentation called the committee on a special toll-free line to register their views. Several attacked it as a giveaway to the wealthy.

But Brulte, flanked by state Finance Director Russell Gould, defended the bill, contending that Californians are too heavily taxed and that businesses avoid coming and expanding in California because of taxes.