$9-Billion Income Tax Cut Urged by Wilson Task Force : Finance: Panelists say reduction is feasible because state will gain $37 billion in revenue as economy grows. Democrats express doubt and call the proposal political.

By CARL INGRAM

Dec. 22, 1994 12 AM PT

TIMES STAFF WRITER

SACRAMENTO — A state commission of private economic advisers handpicked by Gov. Pete Wilson joined in the national tax cut fervor Wednesday, proposing a $9-billion income tax reduction for individual Californians and businesses.

The governor’s Task Force on California Tax Reform and Reduction urged the governor and Legislature to enact an across-the-board 15% cut in personal and corporate income taxes to further boost the state’s recovering economy.

The cuts would be implemented in 5% increments over three years, starting with 1995 tax returns. The reductions would reflect a “dividend” to taxpayers from a California economy that the economists said they expect will match or surpass the national recovery.

Wilson, who appointed the economists to recommend ways to energize creation of jobs in California, did not attend the announcement ceremony at the California Chamber of Commerce.

However, the governor, who enacted a record $1-billion tax increase with the Legislature in 1991 and campaigned this year in favor of lower taxes, all but endorsed the commission proposal.

“I wholeheartedly welcome this report and will review it closely,” he said in a statement. “Serious tax reform will send the message that California will be a friendlier place for taxpayers and that we intend to continue protecting the taxpayers from runaway growth in state government.”

Democrats, noting that the state faces a $3-billion budget debt, called the proposal political and said the tax cuts may not be responsible.

Senate President Pro Tem Bill Lockyer (D-Hayward) said Wilson’s commission--made up of economists who served under various Republican presidents, including Ronald Reagan and George Bush--”appeared to be a very political project and designed to keep Gov. Wilson in the tax cut arena.”

“Every politician loves the idea of cutting taxes, including me,” Lockyer said. “But we have a responsibility to enact a balanced budget, pay accumulated debts, shrink government and then see if there are revenue excesses that could be returned to the taxpayers.”

Lenny Goldberg, executive director of the California Tax Reform Assn., denounced the personal income tax proposal as a “Trojan horse for the wealthy.” He said that under the the plan, the wealthiest Californians would save about $30,000 a year while middle-income people would get only about $300.

The task force estimated that a married couple with two children and an income of $80,000 a year would get a tax cut of $548. A single taxpayer with an income of $40,000 annually would receive a $285 cut.

The economists estimated that during the next five years, the state will receive at least $37.4 billion in revenue over current levels, generated mostly from an economic expansion. The report’s optimistic revenue projections have not been analyzed by the Democrats, Lockyer said.

In fact, according to the task force, the expansion will provide the state with enough new revenue not only to pay for a tax cut but also to pay off its billions in debt and keep the state budget balanced.

Chairman of the task force, George P. Shultz, a fixture in national Republican administrations going back to Richard Nixon, said he believed Wilson will formally endorse the program “in one of his messages early next year. I can hardly stand the suspense.”

The proposal drew immediate support from such business-oriented organizations as the California Taxpayers Assn., the California Manufacturers Assn. and the California Chamber of Commerce, which have championed business tax reductions as a way of stimulating the economy and making California more competitive with other states.

Shultz told reporters that the 15% cut in personal and business income taxes would comply with Wilson’s order to recommend a way to “most effectively spur additional job creation” and make California more competitive as a place to do business.

Of the $9 billion cut over three years, analysts for the California Taxpayers Assn. estimated that $7 billion would be returned to individual taxpayers and the remaining $2 billion would go to business taxpayers.

Of the total $37.4 billion in projected revenue growth over five years, the task force proposed distributing $15.1 billion to finance public schools at required levels, $3.2 billion to pay off bonds and other loans, $9.1 billion for tax cuts and $10 billion for programs agreed to by the governor and Legislature.