Senate Panel Kills Wilson’s Tax Cut Plan

Republican Gov. Pete Wilson’s proposed 15% across-the-board income tax cut for individual Californians and businesses was defeated Tuesday by Senate Democrats and independents, the second time in two years that the governor’s cut has been crushed in the upper house.

The bill, narrowly approved last month by the Republican-controlled Assembly, failed in the Senate Revenue and Taxation Committee when only two GOP members voted for it. Four Democrats and two independents voted no. The same Senate committee killed the governor’s income tax bill last year.

“You’d have to be an ostrich to believe there is going to be an across-the-board 15% tax cut this year,” said veteran Assemblyman Jim Brulte (R-Rancho Cucamonga), who carried Wilson’s bill.

He told reporters, however, that some tax benefits for business might emerge late this summer from a proposed bipartisan committee of legislative leaders, but that tax breaks for individuals probably are dead.

Later, Wilson charged that “the Democrats have sent the wrong message. This will cost California jobs.” A Wilson spokesman said the governor would “look at options” for pushing his tax cut during negotiations with the Legislature in the weeks ahead.

Wilson has argued that a tax cut would further fuel the state’s economic recovery by making California’s businesses and industry more competitive with other states and nations.

But Democrats on the committee, including Sen. Daniel Boatwright of Concord, who led the fight against the bill, insisted that while California is enjoying an economic recovery, schools and prisons should have a higher call on increased state revenues.

“Let me tell you, things in California are good [for business],” Boatwright told Brulte. “We are in better shape than we have ever been before. To say we need a tax break at this time is wrong.”

But Brulte and Loren Kaye, the governor’s undersecretary of trade and commerce, argued that California has among the highest personal and corporate tax rates in the nation and that these have played a decisive role in determining whether companies expand plants in California or move to other states.

The tax cut would save individuals and businesses $550 million in the coming fiscal year, increasing to $1.9 billion the next year and $3.4 billion by the third year, when the full 15% would be in effect.

When fully in place, according to committee consultants, a family of four with a gross yearly income of $40,000 would save $94 in state income taxes, but would net a savings of only $79 because a reduction in state taxes boosts their federal tax liability.

Similarly, the same family making $60,000 annually would save $206 a year in state taxes and net $175. At a gross income level of $200,000, the family would save $1,815 in state taxes and net $1,252 after federal taxes.

Meanwhile in related action, the Assembly and Senate moved to the semifinals of producing a state budget. But major differences still must be resolved.

The Assembly version carries out Wilson’s demand that the renters tax credit be eliminated. The Senate version calls for restoration of $520 million in credits.

Wilson has proposed $584 million in welfare cuts, but the Senate version restores most of them. Also, the Assembly version would not cut as deeply as the governor has proposed into aid for the elderly poor and disabled.