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Conferees Agree on Tax Overhaul : Aide Expects Governor to OK Bill Reducing Bite for Most Families

September 09, 1987|LEO C. WOLINSKY | Times Staff Writer

SACRAMENTO — After scrapping a big tax break for oil companies and scaling back on other business write-offs, Senate and Assembly negotiators reached agreement Tuesday on a sweeping overhaul of state income tax laws intended to reduce the tax bite for 71% of California families.

While the agreement appears to have at least lukewarm support among top Democrats and Republicans in the Legislature, the complex and delicately balanced compromise still must survive votes in both houses in the three days remaining before lawmakers adjourn for the year.

"I think this bill is going to pass on both floors by a very strong majority," Sen. John Garamendi (D-Walnut Grove), who co-chaired the tax-writing conference committee, predicted shortly after the conferees voted 5 to 0, with one abstention, to approve the corporate provisions. The committee earlier voted unanimously in support of provisions dealing with personal income taxes.

Designed for Conformity

Together, they are designed to bring California's income tax system into general conformity with the recently revised federal tax system while providing a much simpler tax form for the vast majority of tax filers.

A spokesman for Gov. George Deukmejian strongly indicated that the governor will support the measure but stopped short of an outright endorsement.

"The governor was pleased with the progress of the conference committee," said Kevin Brett, Deukmejian's press secretary. "And if the bill remains essentially the same, the governor is expected to look upon it favorably."

Garamendi noted that although oil companies may oppose the measure because of last-minute amendments that could hike their taxes, other corporations are likely to be strong supporters because of a lowered overall tax rate and other favorable business provisions.

Republican Sen. Becky Morgan of Los Altos Hills, one of the committee's strongest supporters of hefty tax breaks for businesses, said she was "a little disappointed" that the final outcome was less generous to corporations. But she said she supported the bill "in the spirit of compromise" and predicted that other pro-business Republicans will go along.

"Throughout the discussions, rate reductions and reduction in the number of tax brackets were the overwhelming priority of the governor and I think we have met that challenge," Morgan said.

The Legislature's top Democratic leaders, Assembly Speaker Willie Brown of San Francisco and Senate President Pro Tem David A. Roberti of Los Angeles, also told conference committee members that they will back the compromise.

As it emerged, the measure--which will be divided into two bills before being submitted to each house--would slash the top personal income tax rate from 11% to 9.3% beginning in the current tax year, and reduce the number of tax brackets from 11 to 6. The corporate tax rate would also fall to 9.3% from its current level of 9.6%.

Tax experts with the Franchise Tax Board have predicted that the result would be a tax reduction for 6 million California families, or 71% of all taxpayers, while 353,000 low-income individuals would be taken off the tax rolls entirely. About 2.4 million families could expect to see some tax increases, with the largest hikes going to those who previously managed to shelter nearly all of their income with deductions now being eliminated.

In general, taxes should fall for families with adjusted gross incomes of $50,000 or less and rise slightly for those earning more than $100,000. Families in the $50,000-to-$100,000 category should see little or no change in their state income taxes, although individuals will be affected differently depending upon the kinds of credits and deductions they are eligible to claim.

Although popular deductions for interest on home mortgages would be retained, write-offs on credit cards and consumer loans would be phased out in line with changes made at the federal level. There would be similar limitations on deducting employee business expenses, medical costs and business meals.

Unlike the federal system, however, Social Security and unemployment benefits would remain exempt from taxation.

For most taxpayers with relatively uncomplicated financial lives, the task of filing a state income tax return would be greatly simplified. While current law requires taxpayers to fill out a form equal in size to the federal returns, the new tax system would allow filers to transfer their taxable income from the federal forms to a line on their state returns and then add in tax credits and certain deductions.

Top state tax officials said that could mean a one-page form for the vast majority of income tax filers, with separate one-page attachments for credits taken and for so-called tax checkoffs that go to support causes ranging from preservation of endangered species to special funding for the elderly.

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