SACRAMENTO : Budget Deficit Forces State Legislators to Overcome Their Fear of Taxing

No one is planning a memorial service or preparing a eulogy or ordering a gravestone. But if the talk in Sacramento about raising taxes is any indication, the California tax revolt is officially dead.

Thirteen years ago, California voters overwhelmingly approved Proposition 13 and sent a thundering message to state lawmakers: Hold the line on taxes or else. The significance of that vote was not lost on elected leaders who up until very recently rarely uttered a peep about raising taxes.

Then came word of a $9.1-billion state budget deficit.

Now, “half of the (legislators) in town have a tax bill,� said David R. Doerr, chief tax consultant for the California Taxpayers Assn. “I have never seen so many proposals to raise taxes.�

There are bills to increase the sales tax by one-quarter of a cent, to enact a transfer tax on all property sales and to increase the fees on phone service and other utilities. There are proposals to raise the income tax, up the levy on cigarettes and put a tax on oil production. Even a 5-cent tax on the sale of diapers has been proposed.

Another bill calls for a 3% tax hike on insurance premiums and a 2-cents-a-gallon increase in gasoline taxes. Local government, under one plan, would be permitted to lift the current sales tax limit of 7% for special taxes to fund transportation improvements and other local programs.

Services such as legal advice, dry cleaning, architect fees and accounting would be hit with a sales tax, according to one measure. Another plan would impose a capital gains tax on estates.

The budget deficit has also shed light on tax loopholes that would ordinarily be ignored. For example, Sen. Quentin L. Kopp (I-San Francisco) has introduced a measure that would permit tax assessors to increase the assessed value of commercial property owned by corporations whenever more than 51% of the company’s stock has changed hands.

For years, lobbyist and tax expert Lenny Goldberg pushed for this change to the Proposition 13 rules, but he didn’t get a serious audience until fear about the budget deficit began to mount.

“Billions of dollars can be raised in California by plugging loopholes that benefit only the wealthy and that have minimal or no justification,� Goldberg said.

It’s not just the Legislature that is talking about the need to raise taxes. Gov. Pete Wilson called for tax increases that amount to $1.8 billion. However, he will not support pushing up income tax rates.

Wilson said his reluctance to go along with an income tax hike is inspired by his concern for what it would do to the economy. But he is also reading the political tea leaves. In a public opinion poll conducted by Mervin D. Field, 56% of the 508 adults surveyed by telephone--with a margin of error of plus or minus 4.5%--were opposed to a hike in the income tax.

By a 2-to-1 margin, the public also rejects an increase in the property tax. But there’s support for an increase in the sales tax: 57% support a temporary half-cent sales tax hike.

Other states that have budget deficits aren’t resorting to tax increases, according to Larry McCarthy of the California Taxpayers Assn. Of 30 states with “fairly substantial budget deficits, only four were looking at taxes to close the gap,� he said.

McCarthy concedes that the California budget isn’t easy to cut because “92% is on automatic pilot, locked in place� by previous policies or ballot measures.

Not everyone is touting new and higher taxes. There are legislative proposals that call for a spending freeze and major budget cuts. But the voices for higher taxes have never been louder.

Besides Proposition 13, the last major change in the tax system dates back 23 years when then-Gov. Ronald Reagan and the Legislature pushed through a series of unpopular tax increases to cover a $2.7-billion budget deficit. In 1968, Reagan was booed for three minutes when he threw out the first pitch at an Oakland A’s baseball game, according to tax crusader Joel Fox.

The furor didn’t translate into political action.

It wasn’t until Proposition 13 that the public found a way to act on its misgivings about higher taxes. Then, the concern centered on skyrocketing property taxes.

Today, talk about new taxes in California hasn’t touched off any protests.

In other states, however, the anti-tax lobby is out in force. In Massachusetts, proposals to raise taxes sparked a revolt that drove Michael Dukakis out of office and changed the political landscape in the Northeast. Higher taxes in New Jersey spawned a recall effort of state officials.

But here, “there’s no visible target or high-profile proposal,� said Fox, president of the Howard Jarvis Taxpayers Assn. in Los Angeles. “If we had a taxoholic in office with a clear platform of raising taxes, the revolt would quickly gather steam again.�

Special Tax Breaks Are Also Proposed

All the talk about raising taxes and wiping out loopholes hasn’t stymied new proposals for special tax breaks.

For example, Assemblyman Johan Klehs (D-Castro Valley) has introduced a measure that would give a tax advantage to investors who make low-interest loans to Poland.

“The idea here is to help communist countries make the transition to a free-market economy,� Klehs said.

And there’s no need to worry about what it would do to the state deficit. “The measure would amount to a minor revenue loss,� according to one legislative analysis.

CALIFORNIA TAXES How the Golden State stacks up, based on per capita taxes.

Rank among Tax other states Income 8th Property 33rd Corporate income 6th Local 10th

Source: California Taxpayers Assn.