Assembly Republicans Kill Measure to Tax Rich

SACRAMENTO — Democrats tried to pass tax-the-rich legislation in the Assembly on Monday, but were beaten back by strong Republican opposition.

The bill, which would re-establish the state’s top income tax rate at 11% for individuals with taxable income of $100,000 or couples with income over $200,000, was defeated on a purely partisan 42-29 vote. The measure needed 54 votes to pass because of the two-thirds majority requirement on tax legislation.

The bill would have earmarked the $1.5 billion raised in the first year to pay Proposition 98 funding guarantees for public schools that are in jeopardy because of the state’s $14.3-billion deficit.

Republicans, in fighting the bill, accused Democrats of “demagoguery” by linking the proposed income tax increase to school funding.

But Democrats, during the first real debate on any major tax proposal this year, insisted that most Californians back them. They cited a statewide survey by the Los Angeles Times Poll, which showed that 79% of the public favors raising taxes on individuals with incomes of $100,000 or couples earning $200,000, if higher taxes become necessary.

In a later budget development, the Assembly also rejected a school funding bill Tuesday that sponsors say is necessary to pave the way for an overall budget agreement. The rejected bill represented a paper transaction that would have put school districts on notice that they owed the state $835 million, payable next year, because of an overpayment this year under Proposition 98. The overpayment was caused by a slumping economy, which left schools entitled to less state aid than they received.

The legislation, passed by the Senate on Friday, stems from provisions of Proposition 98 that mandate minimum funding levels for public schools and community colleges.

Assembly Speaker Willie Brown (D-San Francisco) needed 41 votes for the measure to pass Tuesday, but could find only 15 Democrats to vote for the bill. It got 19 no votes from a mix of Republican and Democratic lawmakers, while 26 Assembly members refused to vote.

Senate leaders took the defeat as a bad omen, a signal of difficulties to come when lawmakers try to pass much more difficult and politically risky legislation. “They’ve got to pass that to balance the budget. It’s critical. It is capturing money that is not that difficult to capture,” said Senate President Pro Tem David A. Roberti (D-Los Angeles).

Senate Republican leader Ken Maddy of Fresno, who along with Roberti left a scheduled leadership meeting in the governor’s office when the Speaker failed to appear, angrily declared: “This puts a major obstacle before us.”

The Speaker shrugged off the defeat, saying that there was still time to pass the measure.

The income tax increase would be in addition to the more than $7 billion in proposed tax increases that Republican Gov. Pete Wilson and Democratic budget writers have drafted in response to the $14.3-billion state budget deficit expected to develop over the next 13 months. The legislation would raise $1.5 billion in the budget year that will begin July 1, $1.1 billion extra the next year, and another $1.2 billion the year after that.

The state Franchise Tax Board said the bill would affect only 1.4% of California’s taxpayers, who file about 160,000 tax returns. Democrats contend that the average annual income of taxpayers in this group is about $500,000.

During a spirited debate on the Assembly floor, Democrats charged that the measure was a matter of simple “fairness” because it would correct a tax break given to wealthy individuals in 1987, when the top rate was dropped from 11% to 9.3%.

“This raises the rate back to where it was for the richest 1% and within that group the average income is $508,000 a year,” said Assemblyman Johan Klehs (D-Castro Valley), chairman of the Assembly Revenue and Taxation Committee and author of the income tax bill. “If you don’t want to return the burden back to the top 1%, you are going to have to place that burden on the middle class and your lower-income constituents.”

Klehs at one point brought up the names of two fictional television characters--millionaire oilman J. R. Ewing on “Dallas” and working-woman Roseanne on a series of the same name. “I think you would agree that J.R. should be paying more taxes than Roseanne,” Klehs said.

Assemblyman Bruce Bronzan (D-Fresno) said “the principal beneficiaries of the so-called tax revolt were the wealthy.” He argued that under the present scenario, the middle class would be hit the hardest by the governor’s proposal to raise the sales tax by 1.25%, and boost taxes on motor vehicle registrations, newspapers, candy, snack foods and other items.

Bronzan said it was “shameful” that the governor’s proposed tax increase would hit the middle class and not “the people who already have it made.”

Republicans charged that the proposed tax would inhibit job creation, punish ambition, and let Democrats off the hook on budget cuts.

Assemblywoman Paula Boland (R-Granada Hills) said, “We cannot make California any more a socialized state than the way we are going. . . . I don’t know who you think it is that puts the money in that bank that has made you the loan on your house . . . that makes your loan on your car.”

Assemblyman William P. Baker (R-Danville) said, “This is a terrific soak-the-rich issue. . . .” and compared it to a Democratic-backed plan in 1983 to boost taxes on oil companies that also was attempted in the name of raising money for schools. “(Then) we were the party of the oil barons and they were the party of the little kids,” Baker said.

Baker said the problem was not deciding whose taxes to raise but of getting Democrats to “remember that we need to stop spending.”

Assembly Republican Leader Ross Johnson of La Habra accused Democrats of playing “a political game.”

“They want to demagogue and pretend that the folks on this side of the aisle don’t care about kids,” he said.

Assemblyman Nolan Frizzelle (R-Fountain Valley) said of California’s top moneymakers: “I am concerned about those individuals because they are the ones who make jobs, they are the ones who own the shops, they are ones who hire 70% of the people who are hired in this state. . . . The economy is fueled by the money these people invest.”

Democrats indicated after the vote that they would try to resurrect the income tax bill at some future date.

Times staff writers Jerry Gillam and Carl Ingram contributed to this report.