Tax Hikes Key to Bustamante Economic Plan

By Matea Gold and Evan Halper

Aug. 20, 2003 12 AM PT

Times Staff Writers

SACRAMENTO —

Lt. Gov. Cruz Bustamante proposed an economic plan Tuesday that would rely on an $8-billion tax increase -- primarily on businesses and the wealthy -- in order to reduce vehicle license fees and close the state’s budget gap.

The only prominent Democrat on the Oct. 7 ballot to replace Gov. Gray Davis, Bustamante laid out a program that would have little chance of approval in the state Legislature but may appeal to many core Democratic voters. In the multi-candidate race to replace Davis, solid support from Democrats and liberals could provide Bustamante the plurality he would need for victory.

Republican candidates Bill Simon Jr. and Tom McClintock have championed cutting government spending and eliminating waste, a message that resonates with their voting base. And Peter V. Ueberroth released a plan Tuesday that reflected his centrist campaign but that was light on specifics.

Bustamante outlined his proposal, which he dubbed “Tough Love for California,” during a morning news conference outside his beige stucco tract home in a Sacramento suburb.

It would raise taxes by nearly $8 billion, including significant increases in income taxes on the state’s top earners and on commercial property -- which would require a constitutional amendment to revise Proposition 13. It also would add $1.50 per pack to the cigarette tax and 25 cents per gallon to alcohol taxes.

With unspecified budget cuts of $2 billion -- along with a crackdown on fraudulent Medi-Cal claims and a measure that would require more employers to provide health coverage -- Bustamante said the state could eliminate its projected $8-billion budget shortfall and partially reverse the recent increases in the car tax and community college fees.

“It is tough love, but the people of the state of California understand what it is to make sacrifices,” Bustamante said.

There was one means of raising new revenue that Bustamante did not propose: asking Indian tribes to give more of their gambling profits to the state.

“If you look at the amount of resources that are being paid by the tribes, I think that you’ll see that they’re paying a considerable amount of money already,” said Bustamante, who has received substantial contributions from Indian tribes in past campaigns.

That prompted a jab from rival candidate Arianna Huffington. “How can Bustamante keep a straight face while saying that a $5-billion industry that pays absolutely nothing into the California general fund is paying enough?” she said in a prepared statement.

Davis’ budget proposal earlier this year sought more money from California tribes.

Coming on the heels of a fractious budget battle that deadlocked the Legislature for much of the summer, Bustamante’s plan immediately rankled Republicans, who suggested it would be dead on arrival in the Legislature.

“It sends the message, ‘We don’t want high-income people and we don’t want business,’ ” said Senate Budget Committee Vice Chairman Dick Ackerman (R-Irvine). “We just went through a year with no tax increases and it took everybody a year to realize Republicans were not going to vote for new taxes. So he comes out of the chute with $8 [billion] to $10 billion in new taxes. It is completely unrealistic.”

Budget analysts agreed that the plan would stand almost no chance of passing the Legislature. It has even higher taxes than the original budget proposed by Davis in January, which the governor abandoned after it became clear the plan would not get the needed two-thirds approval from both the Assembly and Senate.

“He would have the same problem Gray Davis had with his tax package back in January,” said Jean Ross, executive director of the California Budget Project, a group that researches the effects that budget decisions might have on low-income Californians.

As a former Assembly speaker, Bustamante insisted he would be able to turn to allies in the Legislature for support. Failing that, he said, he would gather signatures to put his budget on the ballot as an initiative.

“Once and for all, we’ll either get out of this mess together or we’ll have no one to blame but ourselves,” he said.

Mark Baldassare, research director of the Public Policy Institute of California, was skeptical about asking voters to raise $7.9 billion in taxes and fees, as called for in Bustamante’s plan.

“It would easily be targeted by various interest groups and the whole thing could collapse,” he said.

Democratic political strategist Gale Kaufman of Sacramento, who is not affiliated with any campaign, said Bustamante’s immediate goal is demonstrating an understanding of the state’s complicated finances and establishing his values as a candidate. “In the next two months he doesn’t have to pass this proposal,” Kaufman said. “He needs to show people that he understands the job of governor.... Whoever is going to give an economic plan right now is talking to the voters.”

The rollout of his economic proposal marked Bustamante’s first substantial campaign event since he announced his candidacy earlier this month. Since then, he has been trying to make the case for his “No on the Recall, Yes on Bustamante” campaign, arguing that Democrats need a fail-safe in case Davis is recalled.

In recent days, the lieutenant governor has voiced frustration with the Davis campaign, saying that the governor’s aides have been trying to impede his efforts to secure campaign contributions.

Bustamante said Tuesday that he would continue to urge Californians to vote against the recall, but he made no effort to hide his distaste for Davis.

“I’d say my relationship with the governor is as good as anybody else’s in Sacramento,” he said dryly.

Later, speaking to Spanish-language television reporters, Bustamante was blunter. “We don’t see everything the same way,” he said in Spanish. “It’s a little difficult, between me and the governor.”

However, he refrained from direct criticism of Davis in his Tuesday morning speech, which drew dozens of reporters and television cameras to Bustamante’s Elk Grove home. Astonished neighbors stood on their lawns, watching the proceedings with amusement.

Bustamante called his community “a symbol of all those working- and middle-class neighborhoods around the state of California who are sick and tired of not having the kind of attention that they deserve.”

The lieutenant governor’s economic plan would rely on the wealthy to relieve much of the state’s financial distress by boosting taxes for the top 4% of California’s income-earners, and by reversing the provision of Proposition 13 that reduced taxes on commercial property. When that idea was raised during this year’s budget discussions, it met fierce resistance from business groups, which vowed to stop it.

Bustamante also proposed eliminating five tax deductions used by corporations, saying President Bush’s tax cut on corporate dividends is allowing executives to reap “millions of dollars in bonuses for themselves.”

He made no apologies for asking rich Californians to shoulder the bulk of the new taxes. As for smokers and drinkers who might be peeved by additional taxes on their goods, Bustamante said they were enjoying luxuries. “If you are able to pay in order to be able to buy tobacco and alcohol, you ought to be able to help us a little bit more in fixing our budget hole,” he said.

At the heart of Bustamante’s budget outline is a proposal to revise the recently enacted increase in the vehicle license fee, also known as the car tax. Under his plan, there would be no tax hike on vehicles valued at less than $20,000. Owners of cars worth more than $20,000 would pay the higher rate only on the value in excess of $20,000.

Partially repealing the car tax hike would cost $2 billion -- half of the amount projected from the increase. Bustamante would replace the lost revenue with higher income taxes on the state’s biggest earners. His plan would establish new tax brackets of 10% and 11%; the highest rate now is 9.3%.

Democratic lawmakers argue that because that tax swap is “revenue neutral” -- meaning it would raise the same amount through the income tax that it would rescind in the car tax -- it could be enacted with a simple majority of the Legislature. Republicans say the state Constitution requires a two-thirds vote, which would give Republicans the ability to block the plan.

Ross, of the California Voter Project, said some of the estimates in Bustamante’s proposal may be overly optimistic. She questioned whether the state could save $2 billion by requiring some employers to provide health insurance, or $500 million by cracking down on Medi-Cal fraud, as Bustamante claims.

Budget analysts also were skeptical about the $2 billion in unspecified cuts in the lieutenant governor’s plan.

“It brings you back to the same issues that got us to the budget deal we have,” said Baldassare, of the Public Policy Institute. “Are you going to find a two-thirds vote in the Legislature to do all these things?”

(BEGIN TEXT OF INFOBOX)

Bustamante, Ueberroth plans

Lt. Gov. Cruz Bustamante and Peter V. Ueberroth outlined their plans Tuesday for addressing California’s budget problems. Here are the highlights:

* Bustamante dubbed his program “Tough Love for California.”

New revenue

Regularly reassess commercial property*...$2.9 billion

Raise income tax on top 4%...$2.7 billion

Raise cigarette tax by $1.50 per pack...$1.3 billion

Limit S corporation status...$235 million

Raise alcohol tax...$205 million

Close loopholes/other...$590 million

Total new revenue...$7.93 billion