Wilson Calls for $1-Billion Cut in Income Tax

Gov. Pete Wilson proposed a $1-billion income tax cut Wednesday that he said would give the biggest benefit to people who earn less than $100,000 but would not begin taking effect until 1999 and would not be fully implemented until 2000.

Wilson’s sudden announcement at a late afternoon news conference came after he outlined the idea for legislative leaders who are meeting in an effort to fashion an overdue budget for the 1997-1998 fiscal year that began July 1.

“There are many people out there who would welcome an extra $330 in their checking accounts,” Wilson said, adding that the tax cut would benefit “young families with schoolchildren.”

The tax cut would amount to $400 million in the 1998-1999 fiscal year and $1 billion when it took full effect in 1999-2000, Wilson aides said.

The cut would come about by altering income tax brackets. The changes would result in a reduction of at least 10% in state income taxes for couples who earn less than $80,000. The percentage reductions would be smaller for single earners. A single earner who makes $60,000 will receive a $166 cut, or 5%.

Democratic leaders quickly attacked the plan, charging that it would require deep cuts in public school spending. At least one conservative Republican also attacked it--but from the other direction--saying it does not go far enough.

Despite the initial attacks, Wilson’s decision to put forward a specific tax cut plan greatly increases the chances that some form of a middle-class tax cut will be part of the new budget.

Democrats are now expected to offer a counterproposal as the budget talks continue.

Senate President Pro Tem Bill Lockyer of Hayward, the lead Senate Democrat on budget negotiations, quickly attacked Wilson’s plan.

Assembly Speaker Cruz Bustamante (D-Fresno) took a more moderate tack, saying the plan “falls short of meaningful support for middle-class taxpayers,” but that he would be “happy to work with the governor.”

Assemblyman Louis Caldera (D-Los Angeles), chairman of the Assembly Tax and Revenue Committee, said: “It’s an intriguing proposal because it really does help middle-class tax filers.

“We ought to take a serious look at it,” he added.

In defeating Wilson’s prior income tax proposals, Democrats argued that the cuts would benefit the wealthy far more than the middle and lower classes.

In his new plan, Wilson sought to defuse that attack by aiming the cuts at people who earn $100,000 or less. The plan sets $332 as the maximum cut that any joint filers would get regardless of whether they earned $80,000 or $1 million.

Adding to pressure on Democratic legislators, the Republican governor said he would link approval of a tax cut with an issue that Democrats have advocated--approval of a raise for state workers.

Wilson said he did not want the tax cut to go into effect now because it would cause too much damage to public schools. But he said California’s bustling economy would allow for the tax cut in the next fiscal year and in the years after.

Lockyer, pointing out that taxpayers would not feel the full impact until 2000, when Wilson may run for president, charged that the governor was proposing his plan for political reasons.

“The 2000 Republican presidential primary is underway,” Lockyer said.

But the focus of his attack was that the tax cut would take roughly $500 million a year from public schools. State aid to education is determined by a formula that is based in part on tax receipts, so any income tax cut would reduce funds for education.

Influential lobbyists for public schools already were gearing up to kill the tax cut.

“The real fight is the governor wants to cut educational funding,” Lockyer said.

Accusing Wilson of attempting to “rip the financial base out of schools,” Lockyer charged that the tax cut “probably means we won’t be able to afford full implementation of class-size reduction”--even though Wilson was the one who pushed for the popular class-size reduction plan as part of last year’s budget.

In addition to the income tax cut, Wilson reaffirmed that he will continue to push for a bank and corporate tax cut of 5% this year, but that he will drop the additional 5% banking and corporate tax cut he had wanted to begin in 1999.

Wilson’s new tax cut proposal comes after he failed to win an across-the-board 15% tax cut during the last two years. This year, the governor had all but given up on a personal income tax cut.

But when Wilson released his revised budget proposal in May showing that the state was awash in more than $2 billion in unanticipated tax revenue, Lockyer said a personal income tax cut should be on the table.

Wilson seized upon that statement and directed his budget experts to come up with a tax cut.

Wilson’s proposal relies heavily on predictions by the UCLA Business Forecast that the state’s economy will continue to grow during the next five years.

Citing the economic forecast, Wilson estimates that the state general fund, which pays for most state programs, including schools, will grow to $55.2 billion in the 1998-1999 fiscal year--up from a projected $52.7 billion in 1997-1998. By the 1999-2000 fiscal year, the general fund will grow to $57.3 billion, the projections indicate.

“In those succeeding years, we will have more money,” Wilson said, “and therefore can afford sustained existing education funding.”

The additional money flowing into state coffers would allow for the tax cut as well as a raise for state workers, and allow the state to pay off a $1.4-billion judgment it lost recently.

“It is all inextricably intertwined,” Wilson said.

Now, couples reach the top income tax bracket--9.3%--when their taxable income hits $67,675. Wilson’s proposal would push that figure up to $74,442. That would drop people who earn less than $74,442 into the 8% tax bracket and reduce their tax bite.

The five lower tax brackets would be adjusted similarly. For example, the 8% bracket, which now begins at $53,549, would start at $58,904 under Wilson’s plan.

Under the plan, couples earning a combined $80,000 would receive a tax cut amounting to $332 a year, a 10% cut. People who make in excess of $80,000 would get the same $332 cut.

Couples earning $60,000-$79,999 would receive a tax break of $159, or 10% of the state income taxes they pay.

At an income of $40,000, couples would receive a $60 tax cut, representing 12% of the sum they pay in state taxes. Single people earning $40,000 and above would get a $166 tax cut.

Assemblyman Tom McClintock (R-Northridge), perhaps the Legislature’s staunchest fiscal conservative, said he was “somewhat disappointed” by Wilson’s proposal, but would “vote for any tax cut I can get.”

Wilson’s plan, he said, “strikes me as a spend now, cut taxes later, maybe, plan.”

Times staff writers Max Vanzi, Carl Ingram and Dave Lesher contributed to this story.

(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)

Tax Cut Plan

Gov. Pete Wilson says his tax cut plan, which would start in 1999, would primarily benefit people who earn less than $100,000 annually.

SINGLE PERSON

*--*

Gross Taxpayer Percent income savings savings $20,000 $30 9% $40,000 $166 10% $60,000 $166 5% $80,000 $166 3% $100,000 $166 2%

*--*

****

MARRIED COUPLE, TWO CHILDREN

*--*

Gross Taxpayer Percent income savings savings $20,000 $0 0% $40,000 $60 12% $60,000 $159 10% $80,000 $332 10% $100,000 $332 6%

*--*

Source: Governor’s office