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Pressure Is On to Keep Sales Tax Cut

Finances: Quarter-cent rollback is set to end because of the slowing economy. Debate on its future could delay adoption of budget.


SACRAMENTO — An increasingly testy debate over California sales taxes threatens to hold up the state's next spending plan as lawmakers from both parties express reservations about backing a budget that fails to maintain a quarter-cent break in the tax.

Legislators are fighting over whether Californians should continue to receive the tax reduction. The tax cut went into effect in January, triggered by the state's budget surpluses, but it is set to end next year because of a slowing economy.

Opposition to the change is strongest among Assembly Republicans, who make up a minority of that house, but it crosses party lines as well.

Lancaster Assemblyman George Runner, who serves as the Republicans point man on budget matters in the lower house, said his caucus will not back a spending plan that includes the return of the quarter-cent tax. If maintained, the cut is expected to save taxpayers $600 million during the first half of 2002.

"It's a deal-breaker," Runner said. "The bottom line for us is that we do not believe this budget should be balanced on the backs of taxpayers with a sales tax increase."

The Republicans are not alone in worrying about a reappearance of the quarter-cent tax. With elections looming next year, it remains unclear whether moderate Democrats, who represent more conservative districts, will throw up their votes for a budget that fails to keep the cut in place.

Assemblywoman Barbara Matthews, for example, could find herself in a particularly unpalatable situation. The Tracy Democrat ran on a platform last year of fighting to cut unnecessary sales taxes and to stop wasting government money.

Assemblyman Dean Florez (D-Shafter) said he favors the lower tax rate out of his belief that keeping money in taxpayers' pockets will stimulate the economy.

"I think there's going to be a division in the budget, with more moderate and conservative Democrats trying to think about California's struggling economy versus those who would continue to spend our surpluses on the ambitious programs the governor has put forward," Florez said.

In the upper house, Sen. Joe Dunn (D-Santa Ana) said he too is concerned about voting for any sort of tax increase.

"Generally speaking, if there's a tax increase, it's not likely to gain my support, but that's not my final opinion," Dunn said. "I'd have to wait and see the budget as a whole."

The budget must garner two-thirds approval in each house of the Legislature before it can be sent to Gov. Gray Davis. Assuming that Democrats support the document, a single Republican vote is needed to approve the state spending plan in the Senate, and four Republicans need to sign off on the document in the Assembly.

Reluctant Democrats could put party leaders in the unpleasant position of having to scrape up additional Republican votes to pass the budget. For their part, Senate Republicans have stated that a healthy reserve is a higher priority than maintaining the tax cut.

Calls for the lower tax rate are in conflict with reports of softening state revenue and warnings that the state could face a $4-billion deficit during the 2002-03 budget year unless Davis' current spending blueprint is pared down.

Those conditions have prompted Davis to call for as much as a $3-billion budget reserve--a goal that will be made more difficult to achieve if the tax cut, with its $600-million price tag, fails to disappear.

Those developments have stiffened the resolve of some legislators, who vow to fight to return the tax to its higher level in order to pay for other priorities.

"I do not see any scenario in which we are going to embrace the quarter-cent sales tax [reduction]," said Senate Budget Chairman Steve Peace, the El Cajon Democrat who is helping to negotiate the budget.

"I don't know how you reconcile the quarter-cent tax with the reserve," he later added.

The tax cut, which went into effect on Jan. 1, was the automatic result of a 1991 law that said that if the state budget surplus tops 4% of the state's general fund for two consecutive years, a quarter-cent sales tax must disappear for the year.

The $3 billion in savings envisioned by Davis, however, puts the state in the 3% reserve range, setting the stage for the quarter-cent tax to reappear, unless the Legislature intervenes.

Its return would bring the sales tax rate throughout nearly all of Los Angeles County to 8.25%.

Paul Hefner, a spokesman for Assembly Speaker Bob Hertzberg (D-Sherman Oaks), noted that the lower house's version of the budget already contains more than $5 billion in tax breaks for Californians.

Allowing the quarter-cent sales tax to resume, he added, is merely letting provisions of a current statute to play out. That is different, he said, than authorizing new taxes.

"The law reduced taxes on a temporary basis in times of great surpluses and simply put things back to the way they were when those surpluses were no longer as big," Hefner said. "That's exactly where we are."

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