Democrats to Seek Repeal of Car Tax Hike

Democratic lawmakers said Monday they hope to introduce a bill next week that would undo the recently approved tripling of car and truck registration fees and make up the $4 billion in lost revenue with higher taxes on wealthy people and cigarettes.

If successful, the legislation would dismantle an unpopular fee hike -- one that was a major impetus behind the campaign to recall Gov. Gray Davis -- and replace it with taxes that Democrats believe would be more politically acceptable.

Republicans called the move a ploy designed to boost the popularity of Davis less than two months before the Oct. 7 recall election, and they questioned the legality of switching taxes a month after the state budget was approved.

“The game they’re playing is simply, ‘We’ll give everyone the impression that they’re going to see their car taxes reduced, and then when the act is struck down we’ll just apologize -- after the election,’ ” said state Sen. Tom McClintock (R-Thousand Oaks), a candidate to replace Davis on the recall ballot.

Democrats still must surmount major legal, political and financial hurdles in putting together the legislation. Assemblyman Darrell Steinberg (D-Sacramento), who is crafting the bill, said he is still working out the details. Income taxes on the wealthiest Californians might increase from 9.3% to as much as 11%, accounting for more than $2 billion a year, Democrats said, and cigarette taxes could rise to $1.10 a pack, from their current level of 87 cents a pack.

The bill could put Republicans in a tricky political position, wanting to oppose the Democratic proposal without seeming to be in favor of higher car taxes.

Under the state Constitution, budget bills and tax legislation normally require a two-thirds majority of the Legislature. In this case, however, Democrats said they could reverse the vehicle license fee increase with a simple majority.

Their reasoning was that the bill would not raise taxes; by substituting the cigarette and income taxes for the car fee, the measure would be “revenue neutral.”

Peter DeMarco, a spokesman for Assembly Minority Leader Dave Cox (R-Fair Oaks), disputed that analysis.

He questioned how Democrats could legally swap new taxes for a fee hike that was enacted administratively without another two-thirds vote in the Legislature.

“They insisted that this was not a tax,” DeMarco said. “They said it was a fee that would be triggered automatically with nobody taking responsibility for it. Now they have, by definition, changed their story. Their proposal shows that they knew this was a tax all along, and the proposal they intend to introduce next week is further evidence of their intention to circumvent the two-thirds vote requirement.”

DeMarco also predicted that the Democratic plan would lead to chaos as the Department of Motor Vehicles already has begun sending out notices of higher registration fees that are due in October.

Democrats denied a political motive, saying that they have been working on such a plan for nearly five months.

“This would be Democrats taking the lead to get rid of what is by everyone’s agreement a very unpopular fee and substitute it with something that is more palatable to people while keeping the state and local governments whole,” Steinberg said. He said introduction of a bill next week is “likely.”

Assembly Speaker Herb Wesson (D-Culver City) said there is a “serious desire” to introduce such legislation, but not for political reasons.

“None of us like [the higher fee], but it was necessary,” he said. “If there are ways for us to ease the burden, that’s what we want to do. I wouldn’t want anyone to think this is about the governor. This is about Californians.”

Lt. Gov. Cruz Bustamante, the most prominent Democrat on the recall ballot, grabbed hold of the idea last week when he announced his candidacy. He proposed reversing the car tax hike, which is set to take effect in October.

“In a budget with no tax increases, I find it awfully curious that the working families of California take the biggest hit on the car tax,” Bustamante said Monday. “I think we need to rethink the way we do this tax.”

The legislation would prevent annual vehicle registration fees from tripling in October as scheduled.

Under the budget approved last month, motorists will pay annual vehicle license fees three times higher than they paid last year. The fee, also known as the car tax, will rise from the current average of $70 a year to $210. That increase did not affect other fees that motorists pay as part of their annual registration.

To replace that revenue, Democrats are discussing an increase in the personal income tax that California’s highest-income residents pay. That could generate more than $2 billion, legislative staffers say. Another $1 billion could be raised, Democrats said, by increasing the tax on tobacco products. They also are discussing a hike in liquor taxes.

“People are confident we’ll be in the range, but the exact numbers we haven’t done yet,” said Assemblyman Dario Frommer (D-Los Feliz), who is working on the legislation.

Democrats sought but failed to get such new taxes in the budget signed by Davis last month because of resistance from Republicans. The compromise budget instead relies heavily upon borrowing and includes deeper cuts to government programs than Democrats preferred.

A tripling of vehicle license fees was triggered automatically in June, when the Department of Finance concluded that California was running out of cash.

The increase was triggered under the same 1998 law that lowered the vehicle license fees from 2% to .65%. Money from the fees had been going to local government.

When the 1998 law passed, the state had agreed to maintain payments to cities and counties, in effect subsidizing car owners from the general fund. But the law dictated that fees automatically would rise if the state had “insufficient monies” to keep making the payments to local governments.

When Department of Finance Director Steve Peace concluded in late June that fees should rise, the state was running on borrowed money. The Howard Jarvis Taxpayers Assn. quickly sued in Sacramento County Superior Court to block the fee hikes, which it called illegal. That suit is pending.

Peace, a Davis appointee, noted that none of the governor’s budget proposals to close a gap of more than $35 billion included a vehicle license fee increase.

They did, however, include higher personal income taxes for wealthy people and higher cigarette taxes.