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Bills Seek State Tax Breaks for a Select Few

Wealthy taxpayers push narrowly targeted changes in law that can save them millions.

May 09, 2005|Evan Halper | Times Staff Writer

SACRAMENTO — A Wall Street tycoon accused in the 1980s of cheating thousands of investors out of their savings in one of the biggest financial scandals in history now says the state of California cheated him.

So he has launched a campaign to change the state tax code -- retroactive to 1992 -- in hopes of getting $5 million back.

Peter Ackerman, who worked for "junk bond king" Michael Milken, walked away from the Drexel Burnham Lambert scandal with what financial experts say was hundreds of millions of dollars. Now a lobbyist for Ackerman has crafted a bill in the Legislature that would permit the refund -- one of several measures apparently written with a single taxpayer in mind.

Another is a push by Microsoft co-founder Paul Allen, one of the world's richest people, to restore a tax break that would benefit his company. And a Central Valley container maker is making a bid for millions more in state subsidies for its manufacturing equipment.

Large-scale across-the-board tax breaks may be out of the question as long as California has multibillion-dollar budget shortfalls. But some businesses and wealthy individuals hope that a few million in specific breaks here and there -- amounting to "budget dust" in a state that spends more than $100 billion a year -- will sneak through.

Some budget experts and advocates for the poor find such moves worrisome.

"This kind of thing breaks down the integrity of the tax system," said Lenny Goldberg, president of the union-backed California Tax Reform Assn. "You have well-connected taxpayers hiring a lobbyist to change the law retroactively. No ordinary taxpayer can do that."

Peter Ackerman is no ordinary taxpayer. In 1992, Business Week magazine called him the "big winner" in the Drexel debacle. He emerged from the scandal with a fortune that financial experts estimated at $500 million.

Ackerman was accused in lawsuits by federal regulators and investment houses of helping set up a fraudulent scheme to move money through dozens of private partnerships. He kept most of his profits -- unlike Milken, who spent time in jail and had to part with the bulk of his fortune -- but gave back $73 million in a settlement of the lawsuits filed against Milken and his associates.

The $5 million was income taxes that Ackerman paid on the $73 million. His refund request has been rejected by the state tax board and a state court.

California law did entitle him to some relief; he would have been permitted to subtract the $5 million from his state taxes. But Ackerman had left the state by the time he paid the settlement in 1992, and his California tax bill then was only a few thousand dollars.

Ackerman, who declined to be interviewed, wants a technicality in the law changed. A victory would force the state to write him a check.

"This is a glitch in the law that needs to be remedied," said Perry Lerner, Ackerman's attorney.

The effort is seen in the Capitol as more than a quixotic protest. Senate Revenue and Taxation Committee Vice Chairman Bob Dutton (R-Rancho Cucamonga) has taken up the cause, sponsoring a bill at the request of Ackerman's lawyers. Dutton did not return phone calls from The Times.

A top business lobbyist is pushing the measure in private meetings with lawmakers, and the bill survived its first committee hearing late last month, although no vote has been taken on it yet. The bill's chances of passing are unclear.

This is not the first time a figure at the center of a national scandal has asked the state to return income taxes on allegedly ill-gotten profits. Former Vice President Spiro Agnew, who resigned from office amid the Watergate scandal, in 1989 petitioned California to lower his tax bill by more than $24,000, the amount of state income taxes he had paid on bribes he was later forced to return. His request was rejected.

Lobbyist Chris Micheli, who represents a number of corporations on major tax issues, said the change Ackerman is proposing is reasonable and added that the IRS allows for the type of refund being sought. In Micheli's view, the state is holding onto money it was never owed.

"The underlying issue here is the state is doing whatever it can to hold onto taxpayer dollars that aren't theirs," Micheli said. He said there could be any number of taxpayers caught in the same unfair predicament.

The State Franchise Tax Board hasn't found any, however. Board officials say Ackerman is the only person they know of who would benefit from changing the law. A bill analysis written by legislative staff says the same and warns that the proposal could lead to an illegal "gift of public funds" by the Legislature.

Some lawmakers say they can't see scraping up the $5 million for Ackerman's bill, SB 217, in these tight budget times.

At a time when financial constraints have moved the governor to propose cutting aid to the elderly and disabled, "it just doesn't seem like a financial priority for the state," said Assembly Budget Committee Chairman John Laird (D-Santa Cruz).

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