SACRAMENTO — Gov. George Deukmejian directed senior Administration officials Thursday to look at the possibility of giving bigger tax breaks to domestic multinational corporations under proposed repeal of the unitary tax, although he gave no guarantees he would support such a move.
The development gave backers of unitary tax repeal legislation new hope that they may be able to win passage of a bill before the Legislature adjourns for the year next Friday.
Deukmejian ordered the high-level staff review during a meeting in his office with senior staff members and leaders of the California Business Council, a group of 90 domestic corporations that have been intensely lobbying the unitary bill.
Limited Repeal Favored
Previously, Deukmejian's position was that the state could afford only a limited unitary repeal bill. He supports a bill drafted by state Sen. Alfred E. Alquist (D-San Jose), which would provide an estimated net tax cut of $258 million for foreign and domestic multinational corporations. But domestic firms oppose the bill, claiming it is tilted in favor of foreign-based companies.
With the Alquist bill in serious trouble--it was blocked in the Assembly Ways and Means Committee after a strong lobbying effort to defeat it by domestic corporations--Deukmejian made it clear Thursday that he might support a compromise plan drafted by Assemblyman John Vasconcellos (D-Santa Clara).
The compromise would address concerns of domestic corporations, but the added tax breaks would ultimately cost the state treasury $678 million, according to estimates by the Franchise Tax Board.
The potential attractiveness of the plan to Deukmejian, however, is that the tax breaks would be phased in over a three-year period. They also would be conditioned on California's experiencing the business boom that proponents of unitary repeal legislation claim will occur if the state's controversial unitary tax system is repealed. Each phase would require $3 billion in new investment in California by unitary corporations.
Larry Thomas, the governor's press secretary, confirmed that Deukmejian "asked his staff to do an analysis of the Vasconcellos amendments." But he cautioned, "you can't prejudge whether he will support or reject them at this point."
Alquist, meanwhile, moved on another front to keep his bill alive after the setback Tuesday night in the Ways and Means Committee.
Amended to Other Legislation
He amended his proposal into a related measure by Assemblyman Sam Farr (D-Carmel) that already passed the Assembly. This keeps the unitary legislation alive and will allow Alquist's proposal, if it once again is approved by the Senate, to go directly to a vote in the full Assembly, bypassing the Ways and Means Committee.
Alquist's unitary bill was amended to the Farr bill on a voice vote by the Senate. A hearing on it will be held Monday by the Senate Revenue and Taxation Committee.
Under the present unitary system, multinational corporations are taxed on the basis of the worldwide income of all their subsidiaries. The proposed legislation would give these corporations the option to be taxed on income generated just within the United States.