Wilson’s $7.6-Billion Tax Cut Bill Apparently Killed

In what appears to be the legislative death knell for Gov. Pete Wilson’s $7.6-billion tax reduction plan, a state Senate committee Thursday rejected the governor’s proposed 15% income and business tax cut.

The bill’s death in the Democrat-dominated Senate Revenue and Taxation Committee came despite Wilson’s lobbying effort. The proposal attracted only three votes, while six were lodged against it. After the vote, Wilson spokesman Paul Kranhold said, “It’s not a huge surprise given that the Senate is still controlled by the Democrats.”

As negotiations over California’s 1995-96 budget remained deadlocked, Assembly Republican Leader Jim Brulte, who carried Wilson’s tax cut bill, held out a flicker of hope that the measure could be revived later this summer in the Senate.

“They’ve taken the first step toward killing it,” said Brulte, of Rancho Cucamonga. “It is on life support, and today they took a little bit of the oxygen away, but there is still one oxygen tank left.”

But with Democrats in control of the upper house and seemingly united, the chance of it reappearing seems slim indeed. Wilson has said he will put the tax cut on the ballot next year should it fail in the Legislature.

In a related development, the full Senate on Thursday approved what amounts to a Democratic counterproposal, raising at least a possibility of a compromise tax cut as part of a budget accord.

The measure by state Sen. Mike Thompson (D-St. Helena) is targeted at businesses and middle-income wage earners with children. The bill (SB 14) cleared the upper house on a 22-14 vote, with 20 of 21 Democrats and both independents voting for it. It received no Republican votes.

Thompson’s bill had received little attention until Thursday. But Senate Democrats have been touting it recently as a counter to Wilson’s far deeper tax cut plan.

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“I’m sure it will be on more people’s minds now,” Thompson said. “I trust that after this bill failed to garner the votes necessary to pass, people will see that SB 14 is the only tax cut bill in town.”

Thompson’s bill would increase income tax deductions for families with dependent children to $220 per child, from $65. But unlike Wilson’s plan, the Thompson bill gives no direct income tax cut to wage earners.

Thompson’s measure would cost the state $247 million over the next three years--far less than the $7.6 billion that Wilson’s measure would cost in state revenue.

Given its minor impact on California’s $56-billion budget, Thompson’s bill has met little opposition from powerful school lobbyists. Those lobbyists mounted a major campaign to kill Wilson’s proposal, claiming that it would take $4 billion from schools over the next four years.

Thompson’s bill would cut California’s corporate and banking tax rate, but by only half of the 15% that Wilson proposed. The measure also includes a variety of deductions aimed at stimulating small and large businesses, and seeks to increase the amounts that individuals and corporations can deduct from their taxes for charitable giving.

As Thompson’s measure now stands, it has little chance of winning Republican support in the Assembly, where the GOP has a majority.

Unlike Wilson’s plan, Thompson’s bill would leave in place the two highest tax brackets for the wealthiest Californians--a provision that is likely to generate the most opposition from Republicans.

Wilson’s proposal calls for phasing out the upper brackets for individuals whose taxable income exceeds $100,000, or for married couples whose taxable earnings are $200,000 or more a year.

Brulte said that the governor’s tax cut proposal perhaps could be revived by a maneuver that would bring it directly to the floor.

The Assembly occasionally bypasses committees and brings bills directly to the floor. But Thompson, who chairs the committee that rejected Wilson’s proposal, said, “If you see any type of shenanigans taking place, the bill will be returned to this committee quicker than it got to the floor.”

Brulte brought a parade of experts before the Senate committee. They argued that Wilson’s tax cut would help California’s recovery by making it more attractive to businesses looking for places to locate and expand.

“We want to have more people here and create jobs,” said Russ Gould, Wilson’s finance director, citing the need for more concessions to businesses given the new round of military base closures in California.

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Democrats ended up paying more heed to arguments of school lobbyists and Supt. of Public Instruction Delaine Eastin.

“This is a defining issue,” Eastin said after citing statistics showing California’s schools at or near the bottom in the nation in terms of per-student spending and numbers of school nurses, librarians and computers, and having the largest average class sizes of any state in the nation. “To put it further down will be devastating indeed.”

Wilson had worked to get his tax cut approved, appearing on a popular San Francisco radio talk show to build pressure on state Sen. Quentin L. Kopp (I-San Francisco), who had been seen as a swing vote.

Former Secretary of State George P. Shultz, who chairs Wilson’s council of economic advisers and helped draft the governor’s tax cut, also called Kopp to urge that he support the measure.

Kopp ended up voting against the tax cut, although he said the decision was “a lot closer than I thought when I started.” He said that despite a request from the governor that people call his office, he received only nine calls urging him to support the tax cut, and two for him to oppose it.

Wilson and legislative leaders continued to meet in an effort to resolve the budget impasse. Senate President Pro Tem Bill Lockyer told senators Thursday that they should expect to remain in session at least through the weekend.

Meanwhile, California Controller Kathleen Connell relieved some of the pressure to resolve the budget impasse by concluding that the state will continue to pay almost all of its employees even though it has been without legal spending authority since the fiscal year began July 1.

Connell’s decision affects 33,000 state managers and professionals such as lawyers and doctors. The state already was under court order to pay all rank-and-file workers.

However, legislative staffers and the governor’s political appointees are expected to go without pay until a budget is in place.

The state also is unable to pay vendors who deliver goods and services after July 1. Some medical bills for indigents also cannot be paid.