Democrats OK $7 Billion in Tax Increases : Finances: Lawmakers on committee reject Wilson’s proposal for additional hikes. Honig leads plan to seek a boost in income taxes for the state’s top earners.

SACRAMENTO —  Democrats on a two-house conference committee Tuesday approved the $7-billion level of tax increases sought by Republican Gov. Pete Wilson but failed to reach a decision on whether the bulk of the taxes will come from sales or income tax.

The committee, which earlier approved a half-cent sales tax increase for counties, rejected the governor’s plan for an additional three-quarter-cent hike for state programs. The Democrats said they instead intend to press for a boost in income taxes on California’s top earners.

In one of the few areas of agreement marked by a day of partisan bickering, the committee, by a 5-to-1 vote, adopted $2 billion in other tax increases sought by Wilson to help erase a potential $12.6-billion budget deficit.

Four Democrats and a Republican--Senate GOP Leader Ken Maddy of Fresno--approved the tax package, with the committee’s sixth member, Assemblyman William P. Baker (R-Danville), dissenting. In the committee-approved package are proposed new sales taxes on candy, snack foods, newspapers, magazines, jet fuel and bottled water; a new 6% tax on telephone bills; higher income tax collections for contractors, people receiving unexpected windfalls, alcoholic beverages, and elimination of deductions allowed for taxpayers reporting incomes over $100,000.

The Democrats also ganged up to defeat several budget reduction measures considered crucial by Wilson to any budget deal. That included the governor’s recommendation that the Legislature chop welfare benefits, now second highest in the nation, by 8.8%, or $61 a month for a family of three.

On another front, state Supt. of Public Instruction Bill Honig joined Democratic legislators to renew their calls for increases in income tax rates for the state’s wealthiest taxpayers as a means to protect public school budgets.

The committee action, along with comments by Honig and the lawmakers at a Capitol news conference, was further evidence that legislative Democrats appear to have settled on a budget strategy designed to pit the schools against the pocketbooks or bank accounts of the state’s wealthiest taxpayers.

At a separate news conference, Senate Leader David A. Roberti (D-Los Angeles) and Honig, who was flanked by the chairmen of both legislative education committees, said the public schools would suffer heavy, perhaps irreparable damage without at least $1 billion more this year than Wilson has proposed.

All of these Democrats proposed getting that $1 billion by raising taxes on the wealthiest Californians or businesses, although they offered slightly different approaches.

Roberti and Honig maintained that during the 1980s the top 1% of taxpayers increased their after-tax earnings by 75% while everyone else increased their take-home pay, adjusted for inflation, by 5.6%.

Roberti is supporting a package of bills that would raise the top income tax rate from 9.3% to 10% on individuals earning more than $100,000 and couples earning more than $200,000, increase the banks and corporation tax rate to 10% from 9.3% and reduce the deduction for business meals from 80% to 70%. Roberti said his proposal would cost someone earning $500,000 a year an extra $1,000 in taxes.

“The schools are in dire straits,” Roberti said. “The people who have prospered during the last eight years at a time of boom have an obligation to the society that has helped them prosper.”

Honig was less specific but suggested raising the top personal income tax rate to 11% on whatever level of income would generate $1 billion for schools.

Wilson, in a speech earlier in the day to the Federated Republican Women of California, defended his position. He said the income of the well-to-do must be protected so they can use it to create more jobs.

“It is people who earn money and have enough left over after necessities who invest in small business opportunities,” the governor said.

The debate outside the Capitol hearing room at times paralleled the partisan rhetoric that divided the six lawmakers who were inside negotiating elements of Wilson’s budget balancing plan.

Democrats said they were strongly opposed to Wilson’s decision to rely on the sales tax to raise the bulk of the $7 billion in higher taxes that he has asked the Legislature to approve.

Earlier, Wilson indicated that his tax proposal would total $6.7 billion. But Steven A. Olsen, deputy director of the Department of Finance, said the true figure is just under $7 billion.

Keene said the committee intends to go through the whole range of budget options and decide as many issues as it can, then leave the toughest decisions up to Wilson and legislative leaders.

As it stands, the committee has agreed on a Wilson plan to shift health and welfare programs to counties, along with $2.3 billion in proposed sales tax increases and other fee hikes to pay for them. The vote Tuesday added an additional $2 billion in tax proposals to the package. Deciding on where the remaining $2.7 billion in tax increases would come from is the issue still up in the air.

The committee also has tentatively agreed to $4 billion in budget cuts, plus another $1.3 billion in accounting changes designed to improve the state ledger by juggling various accounts.

Of course, as long as the Republicans continue to vote no on the tax measures there can be no deal. Although Democrats control a nearly two-thirds majority in the Senate, Republicans in the Assembly control enough votes to block any tax increase proposal, which requires a two-thirds vote.

In a related development, Assembly budget writers deleted funding for the proposed prison on Los Angeles’ Eastside. Assemblywoman Lucille Roybal-Allard (D-Los Angeles) moved to spend the $148 million set aside for the project on proposed prisons in Susanville and Madera. The action still must be approved by the Senate.

Roybal-Allard, one of the leaders of the move to block the prison, argued that litigation could tie up plans for the Los Angeles prison for another two years.