Wilson Signs Tax Cuts, Lauds Them as 'Fair'

By DAN MORAIN

Aug. 21, 1998 12 AM PT

TIMES STAFF WRITER

SACRAMENTO —

As he signed into law a $1.4-billion tax cut, Gov. Pete Wilson on Thursday sought to erase what for him and most Republicans is a bitter memory of the massive tax hike he presided over during the depths of the recession.

The governor played up what he sees as a major accomplishment and an integral part of his legacy by touring Southern California and touting the tax cut, a something-for-everyone package that includes breaks for businesses, renters, families and motorists.

“No other governor of California has signed a tax cut that is as fair, as equitable and as broad-based,” Wilson proclaimed.

The main feature of the tax package is a 25% reduction in the vehicle license fee. That will save California motorists--businesses and individuals alike--$1 billion in 1999. If it is fully phased in, the car tax cut will save car, truck and motorcycle owners a combined $3.2 billion in 2003.

Wilson’s action Thursday marks the third round of tax cuts in the last three years. Now, the Republican governor who aspires to be president can claim that he has erased much of the $5.4 billion in tax hikes he signed into law at the start of his eight-year administration. He could use that claim to political advantage if he chooses to run for president, his aides as well as Democrats say.

The cuts that Wilson pushed through the Democratic-controlled Legislature are significant. Altogether, they exceed $3 billion a year. Whether Wilson succeeds at fully repealing the earlier tax hikes depends on the state’s economy, and won’t be known until he is long gone from the governor’s office.

This year’s vehicle license fee cut could deepen at yearly intervals, but only if the state economy remains strong and revenue flowing to Sacramento exceeds current estimates.

The cut would take full effect in 2003--five years after Wilson has left office. The way it is written, the tax cut legislation could reduce the car tax by 67.5% from its current level, saving California motorists $3.2 billion a year. If that happens, tax hikes at the start of Wilson’s tenure will have been erased.

However, that final cut will occur only if state revenue in 2003 is more than $3 billion above current forecasts.

The tax cut package is a key part of this year’s deal on the state’s new $76-billion budget, approved last week by the Legislature. Wilson is expected to sign the budget into law today--52 days past the start of the 1998-99 fiscal year and the constitutional deadline for having a spending plan in place.

As a backdrop Thursday, Wilson visited a small tow truck company in Huntington Park. There, he pointed out that “it wasn’t too long ago that California’s economy needed roadside assistance.”

Higher taxes, he said, had caused the economy to break down.

“So we gave California’s economy a jump start by cutting taxes . . . getting government out of people’s wallets,” the governor said in prepared remarks.

Although the tax cut sailed through the Legislature, it was criticized by conservatives who viewed it as too small and by some liberals who believe the state should have used the money for state-funded projects and programs that have been neglected.

“Nobody wanted it but Pete Wilson. . . . It was absolutely political,” said Sen. John Vasconcellos (D-Santa Clara), who called for a different sort of tax cut--elimination of state college and university tuition, which has doubled during the 1990s.

The vehicle license fee cut benefits individuals and businesses. Trucking firms, car rental agencies, agriculture and other businesses account for about a third of the $4 billion a year paid in such taxes.

The first 25% cut will take effect on Jan. 1, and apply to all cars, trucks, motorcycles and trailers. Californians pay an average of $171 a year to register a car. With the reduction, that bill will be shaved by $42.75.

The reduction will apply only to the vehicle license fee, not other charges on the annual Department of Motor Vehicles bill, such as the $28 registration fee, weight fees and others.

In recent years, Wilson and lawmakers have approved a variety of business tax cuts that exceed $1.3 billion a year, and individual tax cuts amounting to roughly $2 billion a year.

For businesses, the breaks include a 5% reduction of the tax on corporate and banking profits, and others aimed at helping manufacturers and high-tech firms engaged in research and development of new products.

This year, Wilson approved a $40-million cut in the taxes that horse racing tracks pay, and a tax credit aimed at convincing defense contractors to build a new fighter jet in California.

For individuals, Wilson and the Legislature last year approved--and sweetened in this year’s deal--a raise in the state income tax credit for children and other dependents to $253 per dependent, from what had been $68 per dependent.

An estimated 3 million taxpayers claim dependents on their state income tax returns and will benefit from the change.

In another tax cut approved this year, Wilson and lawmakers restored part of the renters’ tax credit, which was eliminated as part of the 1991 tax hikes.

The new renters’ tax credit will give $60 to individual renters who have taxable income of $25,000 or less, and $120 in credits to couples with income of $50,000 or less. Altogether, renters will save about $133 million a year.

In its prior incarnation, any renter could claim the credit, no matter how wealthy they were or if they paid no state income taxes at all.

The 1991 tax hikes approved during Wilson’s first year in office occurred when the state was in a deep recession. Struggling to fill a $14-billion budget gap, the governor and Legislature used a combination of budget cuts, accounting ploys and tax increases.

The 1991 tax package was intended to bring in more than $7 billion. But the recession turned out to be deeper than anticipated, and it brought in only an extra $5.4 billion to the state.

Wilson since has called the increases both a mistake and a necessary evil, and he has worked to reverse many of them.

The largest single tax hike in the 1990s involved sales tax, charged on all consumer goods other than food. Sales tax increases since 1991 bring more than $4 billion a year to state and local government coffers combined.

The Wilson administration points out that much of the sales tax is levied by local government, and that voters approved part of the sales tax increase in 1993 in a campaign led by Wilson. The measure made permanent a half-cent sales tax hike, which generates about $1.8 billion a year to local government for law enforcement and firefighting.

Still, when Wilson took office in 1991, the sales tax rate did not exceed 7% in any single county, and only eight counties had a rate of 7%.

Now, invoking authority granted them by Sacramento, all 58 counties have a sales tax of at least 7 1/4%, and Los Angeles and five other counties have a sales tax of 8 1/4%. San Francisco’s rate is 8 1/2%.

Among the lesser tax increases that remain on the books are a boost in the tax on beer, wines and other alcohol, a reduction in the income tax deduction people can claim for business meals, and the sales tax on newspapers.

(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)

Vehicle Tax Cut

Gov. Pete Wilson signed legislation Thursday to cut the state vehicle license fee by 25% starting Jan. 1. The car tax reduction could grow to 67.5% if state revenue exceeds projections over the next five years.

Following are vehicles registered in California in 1997 and license fees paid.

Total

Automobiles--16.8 million

Trailers--1.9 million

Motorcycles--400,000

Commercial trucks--4.5 million

****

Average annual fee

Automobiles--$171

Trailers--$21

Motorcycles--$57

Commercial trucks--$137