Wilson Proposes Increasing State Sales Tax 1 1/4 Cents : Finances: His budget plan calls for a $6.7-billion hike in state levies. He also wants a $4.8-billion cut in spending, $700 million more than first sought.

SACRAMENTO —  Gov. Pete Wilson on Thursday proposed raising the sales tax by 1 1/4 cents--and state taxes overall by a hefty $6.7 billion--as a key feature of his new plan for erasing California’s staggering budget deficit.

In trying to close a projected revenue gap that has grown dramatically from $7 billion when he first took office in January to at least $12.6 billion today, Wilson proposed a sharing of the pain by both those who pay taxes and those who benefit most from them.

The Republican governor advocated $4.8 billion in state program reductions, $700 million more than he initially proposed in his original budget for the fiscal year beginning July 1. He also suggested $1.5 billion in savings that essentially would come from bookkeeping changes.

Politically, Wilson’s new proposal is risky because the tax increases threaten to alienate him from the Republican conservatives who still are waging the 1970s anti-tax rebellion. But the governor, who frequently boasted while campaigning that as San Diego’s mayor he “held the line on taxes,” said he took what he regarded as a pragmatic course and the only sensible one.

Of the sales tax increase, 3/4-cent would remain with state government and 1/2-cent would be given to counties. The counties would use their share of the added sales tax to pay for $2.3 billion in various health services that the state has been financing but Wilson now wants local governments to provide.

Further complicating the proposal, of the 3/4-cent state share of the sales tax increase, only 1/4-cent would permanently remain in effect. The other 1/2-cent would be eliminated after a year, unless it still was needed to close the revenue gap.

And on top of the 1-1/4 cent sales tax increase, counties also would be given the authority starting next year to raise the tax another 1/2-cent--subject to approval by a majority of voters--for the purposes of financing schools and drug and crime prevention.

The minimum sales tax in California is now 6%, split among the state, counties and cities. But most Californians pay more because additional sales taxes have been raised locally for specific purposes. In Los Angeles County, people pay 7%. State government’s share of the sales tax is 4.75%.

As part of the tax increase, Wilson proposed extending the sales tax to telephone bills, with an exemption for “lifeline” services. He also suggested extending the tax to aviation and shipping fuel, bottled water and rental equipment.

Wilson reiterated his January proposals to increase liquor and motor vehicle taxes and to extend the sales tax to candy, snack foods, magazines and newspapers. But he amended his proposed newspaper tax to exempt small papers--those with circulations under 25,000. “We wish to keep them in business,” Wilson said. “Many think they would go under with this tax.”

Apparently at the last minute, he rejected proposals within his Administration to extend the sales tax to automobile and electrical repairs. Instead, he decided to increase the sales tax 1/4 a cent across the board.

Wilson explained: “To the extent that we can, we are seeking to avoid being regressive. And people who are lower income have the older cars and likely need more in the way of repairs.”

A top adviser, speaking on condition that he not be identified, said Wilson also decided he did not want to take any action that would smack of endorsing a tax on services--legal, accounting and the like--as proposed by Assembly Speaker Willie Brown (D-San Francisco).

In explaining why he had settled on a sales tax increase over a hike in the income tax, Wilson told a news conference: “The sales tax is the least threatening to the creation of the new jobs our state must have to avoid greater unemployment and safety-net costs which would take California into an ongoing downward spiral.”

But Wilson did tuck in a bit of a potential income tax boost for high-income people. He proposed bringing the state’s income tax more into conformity with the federal government’s, which has less generous deductions for taxpayers whose earnings exceed $100,000.

The additional $700 million in spending cuts that Wilson proposed would come primarily from an across-the-board reduction in state programs and a cut in state support for county trial courts.

Wilson advocated taking another $110 million from public schools on top of the $2-billion reduction he proposed in January. That would roll back the state’s per-pupil contribution to 1985 levels. The governor also has suggested cutting welfare grants to poor mothers by 8.8% and freezing other health and welfare payments.

The governor expanded from $900 million to $2.3 billion his previous proposal to shift programs from the state to the counties. The programs he wants to transfer include mental health services, public health, medical care for the working poor and in-home care for the elderly.

The governor, in both a prepared statement and during his press conference, made sure the message got out that he was not responsible for the deficit; it was the fault of his predecessor, George Deukmejian, and past Legislatures.

“There will be any number (of people) who characterize this budget, as they did in January, as heartless,” Wilson said. “What I think is heartless is to not have the guts to face the reality that this state has been papering over a deficit for many years and continue to fail to address it.”

“In order to do that,” he continued, “you’ve got to draw a line. There has to be a fine balance between what you’re asking people to shoulder in the way of additional tax increases and the wish that you might be able to do yet more, but at the cost of losing jobs and aggravating the situation.”

But somewhat reminiscent of Deukmejian, Wilson took a hard-line negotiating stance with the Legislature, where Assembly Republicans are adamantly opposed to tax increases and liberal Democrats strongly object to education and welfare cuts.

“The people deserve better than the usual budget gamesmanship of past years,” Wilson said. “They deserve a solution--not protracted negotiation, horse trading and jockeying for partisan advantage.

“The position I’ve outlined today is not a floor from which to negotiate upward. It is not a negotiating stance at all. This is a budget solution.”

Asked whether the new budget plan was his “bottom line,” Wilson replied: “That’s what it means.”

Wilson’s plan drew mixed reaction from the Legislature, with Democrats tending to offer more support than Republicans. Especially critical were Republican members of the Assembly, at least six of whom would have to line up with the governor to get a budget through the Democratic-dominated house.

Senate Majority Leader Barry Keene (D-Benicia) praised Wilson as “a leader who’s willing to take risks.” And Senate President Pro Tem David A. Roberti (D-Los Angeles) said Wilson’s reliance on increased sales taxes represented a “reasonable alternative approach.”

“The governor’s combination of cuts and revenues brings us closer to a solution,” the powerful Democrat said.

Senate Republican Leader Ken Maddy of Fresno called the Wilson proposal a “good start,” but cautioned he had “some reservations” about the $6.7 billion in new taxes.

In the Assembly, John Vasconcellos, the Democratic chairman of the Ways and Means Committee who detested former Gov. Deukmejian, criticized Wilson for proposing cuts in welfare benefits for children. But he praised the governor for working toward a compromise solution.

“This is a guy who wants to solve problems, not hide in his office,” Vasconcellos said.

However, Assembly Republican Leader Ross Johnson of La Habra said he and the other GOP members of the lower house will oppose Wilson’s proposed tax increases.

“He’s trying to solve the budget problem the old-fashioned way,” Johnson said, “by reaching into the taxpayers’ pockets once again. That’s just not going to meet with any enthusiasm at all among the members of our caucus.”

One of those members--Republican Assemblyman Tom McClintock of Thousand Oaks--called the proposal “preposterous.”

“It will mean nearly $900 of new tax increases on the average family of four--families which are already struggling under one of the heaviest per capita tax burdens in the nation and in an already bleak recession,” he said.

In his new budget plan, Wilson reiterated his proposal to suspend Proposition 98--the law that guarantees public schools 40% of the state general fund--and eliminate automatic increases in welfare benefits.

On top of that, Wilson on Thursday expanded his list of long-term, structural “reforms” he says are necessary if the state is to avoid budget crises every year.

Among the most dramatic of his proposals is a plan to give parents more freedom to choose which public schools their children attend. While he did not embrace the controversial idea of tuition “vouchers” that would give taxpayer support to private schools, Wilson said he wants to experiment with “carefully designed” programs allowing parents to choose among schools in their local district or even outside their district.

Another Wilson proposal would channel more of the state’s poor into health care programs modeled after private, pre-paid health maintenance organizations, or HMOs. He said the Health Services Department is nearing completion of a comprehensive proposal aimed at providing financial incentives for doctors and hospitals to participate in the pre-paid programs.

Wilson also said he is directing Health and Welfare Secretary Russell Gould to determine where the state can charge fees on a sliding scale for services it now provides for free. In addition, Gould is to develop a “more aggressive” approach to reducing teen pregnancies, which Wilson said are partly responsible for the fact that the number of welfare recipients is increasing at a rate far faster than the state’s population.

Wilson--a former U.S. senator--threatened to sue the federal government if Congress refuses to eliminate or reduce the level of programs that the states are required to provide and pay for. Wilson said these programs--including the requirement that the state educate and provide health care for illegal aliens--cost state taxpayers $1.4 billion a year.

The governor also said he wants to control the increase in state employee benefit and retirement costs, which together will total more than $2 billion in 1991-92. And he wants to give the state more flexibility to contract with private companies to provide public services, even if it means paying lower wages or laying off Civil Service employees.

In a move that has no direct implications for the budget, the governor said he wants to follow up on a major 1989 overhaul in the workers compensation system by further restricting the right of workers to claim disability for stress-related conditions. Wilson said he would give half the savings to employers as insurance premium reductions and half to workers in the form of higher benefits.

Carl Ingram and Douglas P. Shuit contributed to this story.

EFFECT ON L.A.: One element of the plan could increase the city deficit by $21 million, analysts say. B1

1991-91 REVENUE PROPOSALS

Gov. Pete Wilson’s plans for reducing California’s $12.6 - billion budget gap includes some new taxes, some shifting of responsibilities from states to counties and speeding up the collection of certain taxes. Figures in millions of dollars

STATE (GENERAL FUND) LOCAL NEWLY PROPOSED Temporary *1/2-Cent Sales Tax $1,630 0 Permanent *1/2-Cent Sales Tax 0 $1,630 *1/4-Cent Sales Tax 800 0 * Broaden Sales Tax (includes airline, ship fuel; bottled water) 149 64 * Telecommunications Tax (6% on telephone services) 630 0 * Eliminate some federal income tax reductions on salaries over $100,000 333 0 *Alcoholic Beverages 173 0 *County aid reduction -- -256 Latest total $3,715 $1,438

ANNOUNCED IN JANUARY AND STILL PROPOSED Figures in millions of dollars

STATE (GENERAL FUND) LOCAL Accelerated collections (one-time) *Independent Contractors $290 0 *Supplemental Wages 80 0 *Estates & Trusts 42 0 Permanent collections *Candy & Snack Food $200 $70 * Newspapers and periodicals (No longer includes small papers) 73 27 *Vehicle License Fee 0 769 Total earlier proposals $685 $866 Total revenue $4,400 $2,304

SALES TAX RATES ACROSS THE NATION Sales tax rates for selected states and cities in 1990.

STATE COUNTY CITY OTHER STATE CITY (COUNTY) TAX TAX TAX TAX CALIFORNIA* Anaheim (Orange) 4.75% 1.25% -- 0.5% Los Angeles 4.75 1.25 -- 1.0 Sacramento 4.75 1.25 -- 0.5 San Diego 4.75 1.25 -- 1.0 San Francisco 4.75 1.25 -- 1.0 FLORIDA Jackson County 6.0 1.0 -- -- Jefferson County 6.0 1.0 -- -- HAWAII No local general sales tax 4.0 -- -- -- ILLINOIS Chicago (Cook) 6.25 -- 1.0 0.75 Peoria 6.25 -- 1.0 -- Rockford (Winnebago) 6.25 -- -- -- LOUISIANA Baton Rouge 4.0 4.0 -- -- New Orleans (Orleans) 4.0 5.0 -- -- NEW JERSEY No local general sales tax 7.0 -- -- -- NEW YORK Buffalo (Erie) 4.0 4.0 -- -- New York City 4.0 -- 4.0 0.25 Yonkers (Westchester) 4.0 1.5 2.5 0.25 VERMONT No local general sales tax 4.0 -- -- -- VIRGINIA Alexandria 3.5 -- 1.0 -- Arlington County 3.5 1.0 -- --

COMBINED STATE TAX RATE % CALIFORNIA* 6.5% 7.0 6.5 7.0 7.0 FLORIDA 7.0 7.0 HAWAII 4.0 ILLINOIS 8.0 7.25 6.25 LOUISIANA 8.0 9.0 NEW JERSEY 7.0 NEW YORK 8.0 8.25 8.25 VERMONT 4.0 VIRGINIA 4.5 4.5

* California figures from April, 1991

Note: Selective sales taxes, i.e. on gasoline, tobacco or alcohol, are not included.

SOURCE: U.S. Advisory Commission on Intergovernmental Relations, Washington D.C.

Compiled by Times researcher Tracy Thomas