Candidates Reveal Incomes, Taxes Paid

Hoping to convince voters that they pay taxes like everyone else, the three Democratic candidates for governor opened their income tax returns last week, the one with the biggest bucks revealing the least information.

Politicians are under no legal obligation to release their tax returns, and Atty. Gen. Dan Lungren, the presumptive Republican nominee, has thus far declined to do so. But unveiling the documents has become standard operating procedure in campaign years as candidates try to show voters that they are open, they give to charity and--importantly--they pay their tax bills.

Of the three Democrats running in the June 2 primary, former Northwest Airlines Chairman Al Checchi, among the nation’s richest men, was shortest on detail. He released only parts of his income tax returns for 1995 and 1996, prompting his opponents to accuse him of hiding embarrassing information.

Checchi’s returns showed that he had income of $5.4 million in 1996 and $3.1 million in 1995. His 1997 return is not complete, although his campaign staff promised to provide it later.

Rep. Jane Harman (D-Torrance) released entire tax returns for herself and her husband, Sidney Harman, going back five years, to the start of the three-term congresswoman’s career in elective politics.

During that period, the couple’s taxable income ranged as high as $62.8 million in a single year, 1996, when Mr. Harman sold large blocks of stock in the electronics firm he founded, Harman International.

The combined tax returns make it clear once more that Checchi and Harman may be the wealthiest candidates to ever run for office in California, while the third Democrat, Lt. Gov. Gray Davis, is firmly middle-class, a point Davis makes at every opportunity.

Still, all three candidates had hefty tax bills, with Checchi and his wife, Kathryn, paying nearly 25% to the federal government and 17% to Sacramento in 1996.

The Harmans paid 22% of their income to the federal government and 5% to the state in 1997. Davis and his wife, Sharon, paid 17% of their adjusted gross income of $141,000 to the federal government and 5% to the state.

“They’re paying the appropriate amount of taxes based on the income they reported,” said Steven J. Banks, a certified public accountant hired by The Times to help review and interpret the Democrats’ returns.

Based on the information the candidates provided, there was no evidence of unusual tax shelters that would allow them to dodge taxes, said Banks, a partner in the accounting firm, Brown, Leifer, Slatkin & Berns of Studio City.

That did not stop Davis and a campaign aide to Harman from seizing the opportunity to blast Checchi for refusing to release his entire returns going back several years.

“Must have something to hide,” Davis said of Checchi.

Added Kam Kuwata, Harman’s campaign manager: “Al Checchi says, ‘None of your business.’ That’s usually what they say when they have something to hide.”

“We’re not trying to hide anything,” said Checchi campaign manager Darry Sragow.

What Checchi did release shows that the bulk of his income is from investments, not from wages or salary, which amounted to a mere $34,797 for 1995 and 1996.

Income from capital gains, derived from the sale of such holdings as stocks, amounted to almost $6 million in 1996 and 1995. Dividend income was $852,000 for those two years. Interest income was a combined $1.57 million.

The main source of Checchi’s wealth is his 11.4 million shares of Northwest Airlines stock, which he acquired when he led the takeover of the Minneapolis-based air carrier in 1989. He has extensive investments in other stocks as well.

In 1996, the Checchis paid $688,607 in state income taxes, and $1.34 million in federal taxes, on the adjusted gross income of $5.4 million. In 1995, the Checchis’ adjusted gross income was $3.17 million, for which they paid $356,130 in state income tax and $916,169 in federal taxes.

Included in Checchi’s 1995 income was $1,250 for winning a golf tournament sponsored by the Mirage Casino in Las Vegas. He was paid in chips, although he never cashed them in, Sragow said.

Although his 1997 returns are not complete, Checchi paid an estimated $1.5 million in federal taxes, and $453,000 in state taxes, and made charitable donations of $530,000 last year, Sragow said.

In 1995, the Checchis gave $246,320 to charity, and $456,131 in 1996. Unlike other Democratic candidates, Checchi did not reveal the beneficiaries of his largess.

Among other information not provided was detail about his deductions, which totaled $1.75 million for 1995 and 1996. Nor did Checchi provide detail about the sources of his dividend, interest and capital gains incomes.

“Everybody knows Al Checchi is a very wealthy man,” Sragow said. “A candidate doesn’t have to pull open his skin. They do what is reasonable. This just seemed reasonable.”

Checchi may be the wealthiest candidate in the race. But the Harmans reported annual income of nearly $6 million last year, with $2.16 million from salary, and the remainder in taxable interest, dividends and capital gains.

They paid $1.32 million in federal income taxes and $318,980 in state income taxes, plus $22,552 in the so-called nanny tax for household help.

Sidney Harman’s salary was $2 million in 1997, and Jane Harman’s pay as a member of Congress was $135,040. Their income included $24,341 in Social Security checks issued to Sidney Harman, 79. He paid taxes on $20,690 of that sum.

In 1996, when the Harmans’ taxable income was $62.8 million, the bulk of that money came from capital gains--$57 million from the sale of Harman International stock in May of that year.

The couple paid $12.4 million in federal income taxes in 1996, plus $4.3 million in state income taxes.

The Harmans have given heavily to charity, with the bulk of their donations going to a trust and a family foundation.

In 1996, the Harmans donated 500,000 shares of Harman International to the trust, called the Harman Charitable Remainder Trust. The stock was worth $15.5 million; it cost Sidney Harman $108,500 when he acquired it in 1980.

He draws about $1.4 million a year from the trust, roughly 6% of its value. When he dies, the remainder will go to charity.

“He used the law to his advan-tage,” Banks said. “It is a sophisticated tax maneuver. But I didn’t see it as being abusive at all.”

Also in 1996, Harman made another donation of 50,000 shares of Harman International stock to the Harman Family Foundation. The stock, which he acquired for $10,850 in 1980, was valued at $2.4 million.

Separate documents show that the Harman Family Foundation makes regular donations to a variety of charities. In 1997, the Harman foundation gave $2.5 million in donations, with $2.4 million of that going to the New York-based AYCO Charitable Foundation, which in turn donates to education and health-related causes.

Davis’ tax returns dating to 1988 show that he lives on his state salary and pay his wife receives. In 1997, Davis and his wife had taxable income of $141,492, including $77,367 from the state and $65,157 that his wife makes working for Ralphs Food for Less.

Davis paid federal income taxes of $25,139 and state income taxes of $7,873. Their main deduction was mortgage interest on their condominium--$9,899.

As lieutenant governor, Davis was entitled to a salary of $98,280 last year. But Davis has made a public point of declining some pay raises granted to California’s elected officials by a controversial state salary commission. His income also is offset by contributions to a retirement fund.

Davis made charitable donations of $8,106 in 1997, with the bulk of it going to church-related causes and $1,035 going to the Jewish Federation.

In other years, the couple donated to such causes as the National Organization for Women, American Cancer Society and the California Peace Officers Memorial.

Among Davis’ outside income in 1996 was $540 for what his return lists as “cast and crew talent.” It was for a cameo role in the movie “Burn, Hollywood Burn.” Davis, however, was left on the cutting room floor.