Wilson Tax Cut Survives Key Test in Assembly

Gov. Pete Wilson’s proposed $7.6-billion tax cut failed to obtain a majority vote in the Assembly on Friday, but remained alive when a single Democrat sided with Republicans and voted for it.

The vote for the tax cut by Assemblyman Michael J. Machado (D-Linden)--who is facing a GOP-led recall election next month--surprised and delighted Wilson and most Assembly Republicans, and seemed to assure a Wilson victory Monday when the bill is expected back on the Assembly floor.

“I’m pleased that he saw the light and voted his conscience. I think that’s excellent,” a grinning Wilson said, as he prepared to resume talks this weekend with legislative leaders in an effort to end the state budget deadlock.

Wilson’s tax cut, which still faces an uncertain future in the Democrat-controlled Senate--calls for a 15% cut in personal income, corporate and banking taxes spread over the next three years. At the end of that period, the tax cut would amount to $7.6 billion, slightly more than the sum raised by tax increases during Wilson’s first year in office.

A family of four making $20,000 annually would receive no benefits, according to the legislative analyst’s office. A family of four with an annual income of $60,000 would save $63 in income taxes the first year, and a family of four earning $250,000 would save $529 in the first year.

Friday’s vote came at the end of two hours of debate in which Democrats, including Machado, blasted the tax cut as a threat to more funding for the state’s already weakened public education system.

The Assembly vote on Wilson’s tax cut was 37-34, four short of the 41 needed to pass the 80-seat lower house. But four Republicans who were absent Friday are committed to supporting the tax cut. Assembly Republican Leader Jim Brulte said he will push for another vote Monday when the four missing Republicans are expected to be in attendance.

Wilson seized on Machado’s vote, saying that “with the absentees who are committed to vote it, that will make for 41, so I am eagerly looking forward for its passage.”

“There is hope yet that California will be as competitive as it deserves to be, and the people will experience the fairness of a tax cut,” said the governor, who has made the tax cut a cornerstone of both his California agenda and his budding White House bid.

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Machado could change positions on Monday and cast a vote to kill the tax cut. But such a switch undoubtedly would add to the freshman assemblyman’s considerable political troubles. Machado is facing an Aug. 22 recall in his Stockton-area district because he voted for San Francisco Democrat Willie Brown as Speaker.

“I think he would look so bad doing that,” Wilson said of the possibility of Machado changing his vote. “Would you like to explain that if you were he?”

Machado was not available for comment after his vote.

Even if Wilson’s tax cut clears the lower house, the proposal faces a major fight in the state Senate where Democrats hold a bare majority. They are saying that money returned under the tax cut plan to wage earners, corporations and banks would be better spent on education and other state-funded programs.

“It takes two houses to pass a bill, and I don’t think the Senate will pass it, “ said Assemblyman Richard Katz (D-Sylmar), among the leading opponents of the tax cut.

Katz also noted that predictions of how the volatile Assembly will act Monday are chancy at best. “I don’t know what will happen on Monday. Monday is another day.”

Wilson has vowed to place a tax cut on the ballot as an initiative next year if the Legislature fails to approve his proposal. But Wilson also said that the Assembly’s action Friday will ensure that the tax cut remains a part of separate state budget negotiations this weekend.

The state constitutional deadline for approving a budget passed July 1. The governor is scheduled to meet with Senate and Assembly leaders tonight and all day Sunday in an effort to resolve differences with lawmakers over his proposed $56-billion budget. He said he is optimistic that a budget can be approved by the end of next week.

As for the tax cut proposal, it translates into a $5.3-billion income tax break for individuals, and a $2.3-billion break for banks and corporations by the 1998-99 fiscal year.

The initial impact would be minimal for most people, and Democrats contend that the biggest beneficiaries would be the wealthiest Californians. Democrats also say that because state income taxes are deductible from federal taxes, a state tax cut would mean that Californians would be paying a larger proportion of their taxes to Uncle Sam.

By fiscal year 1998-99, when the tax cut would be fully implemented, a family of four with earnings of $60,000 would save $175 in taxes, while that same size family making $250,000 a year would save $1,563.

“This is a tax reduction that is good for individuals,” Brulte said. “This is a tax cut that is good for job creators. This is a tax cut that is good for government because it will stimulate the economy.”

Several Democrats pointed to a legislative analyst’s report that says that by cutting income taxes $7.6 billion, California’s public schools would lose nearly $4 billion in funding that they would otherwise receive. Funding for California’s schools already ranks near the bottom of all states, and the number of students in classrooms is the highest.

Katz derided the tax cut by calling it “Pete Wilson’s ticket to New Hampshire.” He said its passage would allow the Republican governor to tell voters in that anti-tax state that he had cut taxes.

In the days leading up to the vote, Democratic and Republican lawmakers said the tax cut had a chance of winning approval in the Assembly, where a small number of moderate Democrats were considering voting for it.

But Brulte and several other Republicans conceded privately during the debate Friday that the tax cut was going to lose on a strict party line vote. Democrats also appeared convinced that the tax cut would die in the Assembly.

Initially, as all other members in the chamber cast their votes, Machado took no action. Assemblyman Mickey Conroy (R-Orange) shouted across the chamber, “Too late, Machado, you already spoke.”

Machado had given a floor speech in which he said a tax cut, given California’s need to pay off its debt, is “premature.”

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Shortly afterward, Machado cast a vote for the measure. Seeing that he got the one Democratic vote he needed, Brulte quickly moved to have the measure reconsidered Monday. In order to take the matter up, a majority of the Assembly will have to vote to grant “reconsideration”--and Brown said late Friday he does not think Machado will vote for reconsideration.

“They gave him the opportunity to vote for it [Friday], the idiots. Four of them [Republicans] were gone,” Brown said.

While Machado could not be reached after the floor vote, several Assembly members assumed that he cast his vote at least partially because of the recall election.

Wilson has not taken a position on Machado’s recall. But when asked about it Friday, the governor said, “Ask me Tuesday.”

“I was afraid there would be a knee-jerk party line vote against it, because that’s certainly what the floor performance indicated,” Wilson said.

“Including Mr. Machado’s comments,” Brulte added.

But Wilson stopped Brulte, saying: “That’s all right. He voted for it. He got a little confused. It’s OK.”