Assembly OKs Wilson Tax Cut; It Goes to Senate

With support from a single Democrat and all 40 Republicans, the state Assembly approved Gov. Pete Wilson’s 15% income and business tax cut Monday by the narrowest of margins and sent the measure to the Senate, where it faces stiff opposition.

Wilson hailed the vote, saying it would give income tax relief to 18 million California taxpayers and stimulate the economy by cutting corporate and banking taxes by 15% over three years.

The measure passed on a 41-36 vote, the minimum needed for approval. Joining the 40 Republicans who voted for it was freshman Michael J. Machado (D-Linden), who faces a Republican-backed recall in his Stockton-area district.

The bill had stalled in the Assembly Friday when four Republicans were absent. But Machado kept the measure alive and surprised fellow Democrats by voting for it then, setting up Monday’s showdown.

Before Monday’s session began, several Democrats predicted that Machado would reverse himself and vote against the tax cut. As the final vote was being tallied, Machado stepped off the Assembly floor, adding to the tension.

But he returned in time to push the green button on his desk and put the tax cut bill over the top.

Several Republicans applauded as the vote count in the 80-seat house reached 41 on the electronic boards at the front of the Assembly chambers, while Democrats became angry. Assemblywoman Jackie Speier (D-Burlingame) called Machado a “would-be Democrat.”

“I commend Mr. Machado for voting his conscience,” Wilson said.

As Wilson runs for President, a $7.6-billion tax cut also would help the governor fend off criticism from fellow Republicans over the $7 billion in tax increases he authorized in his first year in office.

The governor’s proposal calls for a 15% cut in personal income taxes for all wage earners, spread over the next three years. Corporations and banks also would receive a 15% tax cut.

By the time the tax cut is fully implemented, it would translate into a combined tax break of about $5.3 billion for individuals and $2.3 billion for banks and corporations by 1999.

As part of Wilson’s tax plan, the two highest tax brackets for the most wealthy Californians would be extended beyond this year, but phased out over the next three years.

If the Legislature defeats Wilson’s proposal, these high-end tax brackets will be eliminated at the end of this year, giving the state’s highest earners a tax break of $325 million in the 1995-96 fiscal year, and more in following years.

“I think a lot of us have lost touch with the working-class person and we don’t know what the value of $150 to $200 that could come back to them in a tax break could mean to them,” Machado said after he cast the vote.

“In the [Central] Valley,” Machado added, “that amount could mean an extra $5 a week for groceries. It could mean a weekend at Great America [amusement park]. It could mean school clothes. It could be a little extra Christmas for them.”

But most Democrats argue that Wilson’s tax cut would rob schools of money. They also note that under Wilson’s plan, Californians would be paying a larger proportion of their taxes to the federal government, because state income taxes are deductible from federal taxes.

Under the Wilson plan, a family of four with an annual income of $60,000 would save $63 in taxes the first year, $121 in the second year, and $175 in the third year. A family of four earning $150,000 would save $283 in the first year, $557 in the second year, and $823 in the third year.

At a press conference after the Assembly vote, Wilson called on the Senate to put the tax cut to a vote immediately. But realizing that the chance of it passing is slim in the upper house, Wilson again said he will place his proposal on the ballot next year as an initiative if the Legislature fails to approve it.

Senate President Pro Tem Bill Lockyer (D-Hayward) said the soonest the tax cut proposal could be heard in a Senate committee is Thursday. Lockyer gave the bill little chance of passing, saying, “There aren’t any senators under recall.”

In the Senate, the tax bill will be heard first in a committee chaired by Sen. Mike Thompson (D-St. Helena), who has said the bill has no chance of passing in his committee.

Thompson has a rival bill to cut taxes by reducing business and banking taxes and giving tax credits to the middle-income. His bill would extend taxes on the wealthy.

Meanwhile, Democratic leaders presented their colleagues with details of Wilson’s modified state budget in private meetings Monday, and emerged saying that the governor’s $56-billion spending plan has virtually no support. The state has been without a budget or legal spending authority since the fiscal year began July 1.

Under state law, the budget must clear the Legislature by a two-thirds vote, 27 in the Senate and 54 in the Assembly.

“I attended the Democratic caucus, and I didn’t find one vote there,” Assembly Democratic leader Willie Brown of San Francisco said.

“Not one,” Lockyer said, after looking for votes among Senate Democrats Monday.

He said Democrats will not vote for a budget unless there is an “ironclad guarantee” that there will be no tuition increases at California’s public universities and colleges.

The fee increases amount to $92 million. Lockyer has called for cuts in prison spending and defeat of Wilson’s tax cut as one way of stopping tuition increases.

Republicans were critical of Wilson’s spending plan, too, although they are more willing to support the Republican governor’s proposals. Assembly Speaker Doris Allen (R-Cypress) said several Republicans in the lower house were balking at supporting the budget because Wilson’s plan contains about $40 million for abortions for poor women.

As for Machado, a farmer and a moderate, he continues to face a Republican-orchestrated recall election on Aug. 22 as part of the continuing leadership fight in the lower house. His GOP rivals claim that he misled voters by suggesting he would not support Willie Brown as Speaker, but ended up voting for him.

Machado said the threatened recall against him had nothing to do with his vote for Wilson’s tax cut. Indeed, his vote could end up harming his ability to raise money from Democrats to fight the recall.

Republicans showed no sign of easing up on him. Wilson, who on Friday had hinted he might support the recall if Machado voted against the tax increase, said Monday that he was taking no position, adding: “I’ll leave that to his constituents.”

Pressed to take a position, Wilson quipped: “I’ll follow my leader,” a reference to Assembly GOP Leader Jim Brulte, who carried the tax cut bill, and has not taken a stand on the recall.

Assemblyman Larry Bowler (R-Elk Grove), among the main proponents of the recall, said Machado’s vote for the tax cut will not slow the effort. Pointing out that Machado had given a floor speech against the tax cut on Friday, and then voted for it, Bowler called Machado’s action “sleazy.”

“This wasn’t courage,” Bowler said. “This is Machado doing what Machado does best.”