Governor-Elect Is Urged to Cut Capital Gains Tax

Calling on Democrat Gray Davis to make good on a gubernatorial campaign pledge, Orange County Assemblyman Bill Campbell introduced a bill Monday to eliminate the state capital gains tax on investments held more than five years.

By raising the issue on the first day of the legislative session, Assembly Republicans sought to pit the governor-elect against Democrats in the Legislature, who are unlikely to favor curtailing the tax.

If Davis backs away from his pledge, then the Republicans could show him as a liberal in moderate’s clothing.

The state capital gains tax is levied on profits from investments, no matter how long they are held.

Campbell, who tried to get a similar bill passed two years ago, said he believes in the tax cut as a policy that would stimulate growth.

“I believed then, and I continue to believe, that eliminating the capital gains tax will unleash the entrepreneurial zeal in California, generating new revenues to the state through additional employment and sales activity of entrepreneurs,” the Villa Park Republican said.

He also noted that it is good political strategy to “keep after” Davis to see if he follows through on his campaign promises.

A spokesman for Davis could not be reached for comment.

Thirty Assembly Republicans, including the GOP members of the Orange County delegation, signed on as co-sponsors of the legislation. State Sen. James Brulte (R-Rancho Cucamonga) launched a similar volley Monday in the state Senate with his own capital gains tax-cut measure.

In a televised debate in September, Davis said he favored doing away with capital gains taxes on investments held longer than five years. Campbell and Brulte say they are only taking Davis at his word and responding to his call for an “era of consensus.”

Assembly Speaker Antonio R. Villaraigosa (D-Los Angeles), who called for bipartisanship at Monday’s swearing-in ceremony, said he couldn’t comment on the Campbell bill until he studied it and conferred with Davis.

“We’re always open to issues, but we have to be prudent, considering the fiscal position we are in,” Villaraigosa said.

Assemblyman Wally Knox (D-Los Angeles), who chairs the Revenue and Taxation Committee, said he also would withhold judgment until talking to Davis.

“The point of having a unified government is to work together,” Knox said, referring to the Democrats’ dominance of both houses and the governorship.

“The only way to do tax cuts in the 1999 session is to watch the tax consequences very carefully,” Knox said. “But that doesn’t mean you can’t do it.”

Knox and Villaraigosa said they did not support Campbell’s capital gains legislation two years ago.

Both houses return in January to begin their work.