Lawmakers Back Tax Rebate; $2.7 Billion in Cuts Likely

Key legislators Saturday voiced support for a tax rebate for couples of as much as $180 as lawmakers continued to wrestle over how to divvy up a likely tax cut of at least $2.7 billion.

Individuals earning less than $35,000 could receive $60 each, or $120 for couples. People earning more could get $90, or $180 for couples who file joint income tax returns. Lawmakers are considering a third level for upper-income people that would give them more.

In addition, public school teachers and families appear headed for some form of tax break.

Democratic legislative leaders met privately with Gov. Gray Davis throughout the day in an effort to reach agreement on the specifics of the tax cut.

A vote in the Legislature on the overall $100-billion budget for the fiscal year that begins July 1 could come as early as Thursday.

“Gov. Davis has had very good discussions with leadership,” his spokeswoman, Hilary McLean, said Saturday. “Negotiations over the budget are progressing in a positive way.”

Several elements of the Legislature’s tentative tax compromise fall short of what Davis has proposed. The Democratic governor, for example, had urged that teachers be exempted from paying any state income taxes. He also proposed that rebate checks amount to $150 for individuals or $300 for people who file joint income tax returns.

However, Democratic and Republican leaders in the Legislature oppose elements of Davis’ plan, and are adamantly against the governor’s desire to eliminate state income taxes for public school teachers. Teachers union leaders also oppose the idea, and are seeking a pay raise instead.

After the Senate-Assembly budget conference committee approved a $2.7-billion tax cut late Friday, budget writers turned to the details Saturday.

Among the elements, public school teachers would receive $200 million a year in combined income tax credits, with the amounts rising as their years of service increase.

Under a compromise being pushed by Democrats, teachers with 20 or more years on the job would receive a credit of $1,500 a year, roughly half their state income tax.

Beginning teachers with up to four years of tenure would receive an income tax credit of $250 annually. Teachers with five to nine years on the job would receive a $500 credit, and those who have worked 10 to 19 years would receive $1,000 credits.

The $200-million proposal is less than half the sum public school teachers would receive under Davis’ proposal. It’s also far less flashy than Davis’ call to abolish state income taxes for teachers.

The amount that people can claim in state income tax deductions for children and other dependents could rise by at least $100, saving families about $450 million, said Senate Budget Committee Chairman Steve Peace (D-El Cajon).

Taxpayers now can deduct about $230 for each dependent. Senate Republican Leader Jim Brulte (R-Rancho Cucamonga) is seeking to boost that amount by $260, raising the deduction for dependents to the current federal level.

Looking to return a part of the record surplus, Davis last month announced that he would push for rebates that would give those who pay income tax checks of $150, or $300 for joint filers. The checks would arrive this fall.

However, Republicans and Democrats in the Legislature argued that if Californians receive rebates on their state income taxes, their federal income tax bill will rise, erasing part of any gain. Additionally, low-wage workers who pay no state income taxes would receive no money.

Senate Democrats countered with a “sales tax” rebate. Under their plan, all workers, including low-income people, would qualify to receive some money. And unlike rebates on state income taxes, a sales tax rebate would not add to the federal income taxes that Californians must pay.

One part of Davis’ original tax package that remains intact is his proposal to grant elderly and disabled people on fixed incomes one-time rebates amounting to $154 million statewide. The income tax break for renters who are elderly, blind or disabled would double to $600, and rise to $816 for those who own homes. The break is geared to such people who had household incomes of $33,000 or less in 1999.

Davis’ desire for “visible” tax cuts is a cause for conflict in budget negotiations. Republicans want permanent tax cuts. Davis is advocating primarily one-time tax cuts, good only for this year.