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California and the West

Democrats Propose Permanent Rebate Plan

Surplus: Senate leaders counter Davis' idea of one-time check, saying sales tax refund would help more people.


SACRAMENTO — In a rebuke to Gov. Gray Davis, Senate Democrats are advocating scrapping his one-time plan to send $150 checks to state income taxpayers in favor of a permanent plan that would offer smaller rebates to more than twice as many people.

Senate Democrats are calling for a permanent sales tax rebate program, which they say will spread $1.4 billion among about 32 million Californians who pay sales taxes. They say the move would provide relief for low-income residents and working families, unlike the Davis plan.

Under one model of the Democrats' proposal, each taxpayer would be eligible for a $50 rebate, with dependents eligible for $25 rebates. A family of four would receive $150, with the possibility of a cap on how much families could receive.

Earlier this month, the Democratic governor unveiled his own plan to return some of California's enormous tax surplus.

Davis proposed issuing $150 rebate checks to each of the about 12 million Californians who paid income taxes in 1999 at a cost of $1.76 billion. An additional $154 million would go to elderly people on fixed incomes.

Senate Democrats contended Tuesday that their proposal offers the same amount of tax relief as Davis' plan because it is a sales tax rebate, which they say guards recipients from potential federal and state tax liabilities. The governor's plan, according to the Democrats, would cost California taxpayers $300 million in higher federal income taxes.

"We think all the rebate should go to the taxpayer and not to the federal government," said state Sen. Steve Peace (D-El Cajon), who chairs the Senate Budget Committee.

The Democrats noted that their proposal offers relief to low-income residents who would not qualify for Davis' rebates. A family of four earning $35,000 or less pays no state income taxes and therefore would not receive a rebate under the governor's plan.

"The people that need the money and are going to spend the money on necessities are going to get a bigger piece of this," said Senate President Pro Tem John Burton (D-San Francisco). "I don't know if Bill Gates . . . or Shaq O'Neal are sweating it out waiting for a $150 rebate."

Assembly Speaker Bob Hertzberg (D-Sherman Oaks) also has pledged that a tax cut will be a part of the lower house's budget proposal this year.

Davis spokesman Michael Bustamante said the numerous tax break proposals will be part of the budget conference process between the Legislature and governor.

"It's good to know that both the Assembly and the Senate agree with the governor that a portion of the surplus should be returned to taxpayers," Bustamante said. "The proposal the governor put forth is a sound proposal."

Senate Republicans welcomed their Democratic counterparts' proposal as a "good starting point" for upcoming budget negotiations, noting that it symbolizes a sea change in tax refund attitudes held by the Democrats.

Sen. Charles Poochigian (R-Fresno) said he would like to see an even larger portion of California's surplus--which Davis has pegged at $12.3 billion--returned to taxpayers who funded the windfall.

"The concern that virtually all Republicans in the state had was that the governor's proposal was a one-time return," Poochigian said. "We were certainly looking for ways to offer permanent tax relief. This proposal does that."

As long as state tax revenues hum along at a healthy clip, the Democrats' sales tax rebate program would be a permanent tax reduction, according to Peace. If sustained for a number of years, the program could pave the way for consideration of lowering sales taxes across California.

Should the state hit tough financial times, however, the rebate could be suspended pending a two-thirds vote of the Legislature.

A different version of the sales tax rebate program being considered by Senate Democrats would offer a minimum rebate of $30 to each state taxpayer, which could increase to $80 based on income. The rebates would be more for higher wage earners. Dependents would be eligible for $25 rebates.

Under that proposal, a family with two adults earning $75,000 with three children would receive a $235 sales tax refund. Or, a head of household earning $25,000 with one dependent could expect a $75 refund.

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