Proposal Minus Its Proponent : Tax Advisers Tax State’s Patience

SACRAMENTO —  The usually unflappable Gov. George Deukmejian reportedly uttered a few well-chosen expletives when the report from his handpicked Tax Reform Advisory Commission landed on his desk here the other day--and with good reason. It would be difficult indeed to find a more politically untenable document.

By recommending a major expansion of the sales tax to such things as food, drugs and health services, and by suggesting that previously untaxed Social Security and unemployment benefits be subject to income tax, the commission virtually guaranteed that its report would be dead on delivery.

Chairman Dean Butler, a Los Angeles lawyer, emphasized to reporters that he and his colleagues “did not attempt to consider the political ramifications of any recommendations,” which was to understate the obvious. But one might think a modicum of political reality could have seeped into commission discussions.

So quickly did leaders in both parties, including the governor himself, move to put distance between themselves and the commission’s report that nobody expects enough of it will be salvaged to frame an agenda for realistic tax reform. But the report should at least dispel any notions that Deukmejian appoints task forces to tell him what he wants to hear.

In creating the commission by executive order last April, the governor expressed concern that the existing tax structure “does not reflect changes in the economic base created by modern electronic technologies and other new developments and may not be adequate to fund government over time.” He also said that the current tax system “is replete with specific tax provisions which may now be irrelevant or obsolete.”

The commission was given the burdensome job of determining the adequacy of California’s tax base; reviewing tax exemptions, deductions and credits to determine any inequities that exist; reviewing the impact of the tax structure on the economy and the state’s business climate, and proposing recommendations to make the tax system more equitable without causing an overall increase in taxes.

Tax reform requires bipartisan consensus, but Deukmejian either purposely or inadvertently ignored that fact in packing the seven-member commission with five fellow Republicans and two people who are registered “decline to state.” There is one woman, but no representative of ethnic minorities. Thus it was apparent from the outset that, because of its makeup, anything the commission had to say would be viewed with suspicion by the Democratic-controlled Legislature.

Nothing, however, could have prepared either Deukmejian or the Democrats for the explosive nature of the 149-page document unveiled on Valentine’s Day.

Despite assurances by the commission that its recommendations would be “revenue neutral”--increased taxes in some areas would be offset by decreases in others--and that tax credits and lower tax rates would mitigate the impact on low-income groups, political nerve-ends jangled all over Sacramento. Liberals condemned the idea of taxing food, medicine and Social Security benefits; conservative business groups detected a “strong antibusiness message” in the proposal to split property tax rolls, thus allowing for higher tax levies on commercial and industrial property.

Deukmejian, only minutes after the commission’s report was distributed to reporters, issued a public statement disavowing various elements, including the proposal to expand application of the sales tax. He also attempted to portray the findings as “a beginning, not an end, to the debate and discussion we must have in California about our tax system. . . .” He ordered the commission to extend its life for another six months and “hold public hearings on the ideas it has presented in its report.”

What he had to say to commissioners privately one can only guess. With a reelection race coming up next year and with Democrats having precious little in the way of issues to use in a campaign against him, Deukmejian could probably visualize the commercials and brochures: “The governor’s own commission wants to tax your visits to the doctor. . . .” New opportunities must have suddenly appeared to Democratic campaign consultants.

Senate President Pro Tem David A. Roberti (D-Los Angeles) gave the first clue to the not-so-loyal opposition’s response when he declared that many of the commission’s recommendations “strike terror in the minds of California’s most precarious citizens--the poor, the elderly, the ill.” He charged that the proposals “are wholly inapropriate (and) insensitive” and said of the commission, “This partisan group has become not only irrelevant, but outright damaging to the need for a thoughtful and comprehensive review of California’s tax system.”

Further hearings on the merits of any of the recommendations, which also include a proposal for a simplified flat tax on personal income and a 10% reduction in the bank and corporation tax rate, are likely to be obscured in bitterly partisan debate. The governor’s commission, far from creating any impetus for change, may have made meaningful tax reform even more elusive.