Davis Rejects Sales Tax Increase of More Than 1%

SACRAMENTO —  Gov. Gray Davis distanced himself Tuesday from a proposal by his own Finance Department to raise the sales tax by an additional $900 million next year as a way of ensuring local government will be able to pay for health-care programs.

“This matter was never brought to my attention,” said Davis. “I am totally opposed to any additional increase in my sales tax proposal. I’ve already proposed one penny. That’s what it is.”

When he released his budget Friday, Davis proposed raising the sales tax by 1% starting in July to bring in $4.5 billion, and imposing heftier income taxes on wealthy Californians to raise $2.5 billion.

Davis wants to give roughly $8.2 billion to local governments so that counties can take responsibility for several health-care programs now run by the state.

A Department of Finance memo circulated Friday to legislative budget aides said income tax payments by wealthy Californians would fall from $2.5 billion this year to $1.8 billion in 2004.

To make up for the drop, the administration was planning to raise the sales tax by 1.125% next year, the memo said. A 1.125% increase would raise $5.4 billion a year.

But after the memo became public Tuesday, the Department of Finance issued a second memo announcing that the 0.125% tacked on to Davis’ proposed 1% sales tax increase was being abandoned.

The 0.125% “increase was an option considered but should not have been included in the write-up “ the new memo said. “We anticipate further discussion on which programs will be included in realignment and adequate revenue sources to fund realignment.”

“It is laughable,” Sen. Dick Ackerman (R-Irvine), a critic of Davis’ tax package, said of the quick reversal. “I find it hard to believe it was a mistake.”

A 1% sales tax increase would mean consumers in many urban counties would be paying 9.5% sales tax on purchases of durable goods. Davis Press Secretary Steve Maviglio did not say how the administration intends to make up for any shortfall in income tax revenue.

He said administration tax experts are taking such a conservative view of the taxes that high-income Californians will pay that “it is likely there will be sufficient growth in these revenues” to cover the cost of shifting the health-care programs to local government.