Davis Proposes $150 Rebates for State Taxpayers

Moving quickly to return California’s record tax bounty, Gov. Gray Davis on Thursday proposed sending $150 checks to every income taxpayer in the state, and $300 to couples who filed joint returns for 1999.

The governor said rebate checks would arrive this fall, about election time, if legislators approve the plan. The rebates would total $1.76 billion, and go to everyone who paid income taxes in 1999--about 12 million Californians. An additional $154 million would go to elderly people on fixed incomes.

“The success of this economy has produced an enormous surplus,” Davis said. “It is only fit and appropriate that we return some of that to the people who created it.”

However, as Davis and legislators begin to wrangle over the 2000-01 budget, the governor appears to be headed for a fight over how best to spend a surplus of historic dimensions--$11 billion to $16 billion.

Much of the pressure will come from fellow Democrats who are seeking to use the bulk of the bounty for schools, social services and public works projects such as freeway construction to ease gridlock.

In their budget plan, Senate Democrats have offered no major tax cuts so far. Assembly Democrats are proposing a variety of breaks for businesses and low-income people. But their opening tax cut proposals amounted to $1 billion, half of what Davis is calling for.

“It is certainly more than what we wanted,” Assembly Speaker Bob Hertzberg (D-Sherman Oaks) said of Davis’ $1.91-billion plan. “What about the working mother stuck in traffic? Would she rather get home to her kid, or get an extra $50?”

Under Davis’ proposal, all income tax payers, including the wealthiest, would receive full rebates. Low-income residents stand to receive little or nothing, a factor that is sure to disturb many Democrats.

A family of four earning $35,000 or less, for example, pays no state income taxes, and thus would receive no rebate. A single parent with one child making $31,000 a year also pays no state income taxes, and would not be in line for a rebate. People who paid less than $150 in income taxes would receive rebate checks equaling the sums they paid.

“There is a group of people who are totally left out,” said Jean Ross of the liberal California Budget Project. “They may not be paying income taxes. But they are paying all the other state taxes.”

Concerned that the economy may falter in later years, Davis is proposing no broad cuts in income or sales tax rates, and no major permanent tax breaks--prompting Republicans to criticize the plan he announced Thursday.

Assembly Republicans called for a $4-billion tax cut package, twice what Davis offered. While lauding the rebate idea, Assembly Republicans on Thursday proposed tripling the credit that families can claim for dependents on their income tax returns to $738.

“You can’t tell me we don’t have enough money for ongoing tax relief,” said Assembly GOP Leader Scott Baugh of Huntington Beach.

Davis declined to disclose any business tax breaks he is considering. Other sources say he is mulling over a variety of them, to be announced next week when he releases his revised spending plan for the 2000-2001 budget year, which begins July 1.

The governor did say he is considering cutting tuition for students at the University of California and California State University systems, an idea being pushed by Senate Republicans.

But he said the rebates amount to “98%” of his tax cut proposal for the 2000 budget year. In addition to the rebates, Davis is proposing a one-time $154-million tax break for low-income Californians who are older than 62, blind or disabled, and had household incomes of $33,132 or less in 1999.

The Democratic governor called for doubling the income tax break to $600 for elderly, blind or disabled people who rent, and raising a property tax break for those older individuals who own homes to $816. These one-time cuts would affect 570,000 older, blind and disabled Californians on fixed incomes.

Senate President Pro Tem John Burton lauded Davis’ proposal to help elderly people on fixed incomes. But Burton was skeptical of the income tax rebates and said any tax cut should be aimed at helping poor working parents. He suggested granting them rebates for sales taxes they pay, or creating state income tax credit for people with low incomes. He also renewed his call for spending the bulk of the surplus on other causes.

“If you asked people, ‘We have more money. Do you want to put it into mental health care, road construction and education?’ they’d say, ‘Yes,’ ” Burton said. “People would rather invest in the future.”

Lawmakers have given a rebate only once before, in 1987, when the state was flush and individual Californians received an average of $94. By 1991, however, California was mired in the deepest recession in its history, and then-Gov. Pete Wilson and the Legislature faced an unprecedented $14-billion budget gap. They responded by imposing major tax increases and budget cuts.

By 1993, with the recession easing, Wilson and the Legislature began cutting taxes. There have been significant tax cuts each year since then.

Despite those tax cuts, Sacramento continues to receive record tax revenue. So much money is flowing to the Capitol that by 2001, the state is almost sure to exceed a nearly forgotten spending limit imposed by a 1979 initiative pushed by anti-tax crusader Paul Gann.

By sending rebate checks this year, Davis could avoid hitting the spending limit. He also could avoid the limit by using the surplus on freeway construction or other public works projects, or by paying off debt incurred from the sale of bonds to finance state construction projects.

On Thursday, Davis specifically rejected speeding up a cut in the annual tax motorists pay to register vehicles. Up until 1999, Californians had paid 2% of their vehicles’ market value in annual vehicle license fees.

But in a 1998 budget deal engineered by then-Gov. Wilson, the car tax was cut by a fourth, starting last year. More cuts are to occur in coming years, so long as revenue continues to rise. The car tax will fall to 0.65% of a vehicle’s worth by 2004, assuming that general tax revenue reaches $78.3 billion.

The latest estimates show that California’s general tax revenue will reach $75.2 billion this year--a number sure to grow. It was calculated before all state tax returns from 1999 were tallied.