Democrats Offer Proposal to Cut Car Tax

SACRAMENTO —  A day after Gov. Pete Wilson vetoed a Democratic proposal to cut the sales tax by a quarter-cent, Democratic leaders for the first time voiced support for a cut in the car tax.

They inched closer to Republicans with a new proposal that would shrink vehicle license fees by $1 billion a year, saving individual motorists up to $130 annually.

Lawmakers could vote on the proposal--part of an effort to end the impasse over the state budget--as early as Friday.

“This is clearly a move in the direction of the governor,” said Assembly Speaker Antonio Villaraigosa (D-Los Angeles). “We want to get these negotiations off dead-center.”

Wilson and Republican lawmakers, who are pushing for a $3.6-billion car tax cut, characterized the latest offer as a significant step. But GOP lawmakers and the Wilson administration derided it as too modest.

“They have the right ingredients to make it work,” said Sean Walsh, Wilson’s spokesman. “The governor’s requirements are, No. 1, that [the tax cut] needs to be ongoing and, No. 2, it has to be significant. We’ve got ongoing.”

The proposal, sketched out by Villaraigosa and Senate President Pro Tem John Burton (D-San Francisco) at a late afternoon news conference, is the third tax cut plan offered by Democrats in the past week. They opened with a half-year, quarter-cent sales tax cut, mixed with breaks for businesses and renters, amounting to almost $1 billion.

When Republicans scoffed at that plan, Democrats enriched the proposal by agreeing to extend the sales tax cut to a full year, at a saving to Californians of $955 million.

After lawmakers in both houses approved that plan, Wilson vetoed it, calling the sales tax cut too small. Now, with Republicans having given up little or nothing in return during budget negotiations, Democrats have changed tack again and for the first time are pushing a version of a car tax cut.

“If you don’t like this proposal, wait another 24 to 48 hours and you’ll have another one,” said Senate Republican Leader Ross Johnson of Irvine. “Actually, there is something good to be said about this. They’ve moved in just over a week’s time substantially, increasing the size of the tax cut they’re willing to discuss.”

Under the Democrats’ latest proposal, taxpayers would be able to claim a credit on their state income tax returns of 70% of the fees they pay to register their cars each year. However, the amount they could claim would be capped at $130, a feature Democrats say ensures that middle- and low-income earners would benefit most.

The credit could be claimed only by individuals, not businesses that own cars. Poor people who pay no income taxes but have cars could get a refund of their vehicle license fees.

The Democrats’ plan also includes a so-called trigger, requiring that the governor repeal the car tax credit if the economy dips and tax revenue to the state falls below Department of Finance estimates.

Burton, his voice tinged with sarcasm, cited Wilson’s Department of Finance estimates showing that the economy will continue to expand for the next several years. “The trigger is just there,” he said, “on the absolute off-chance that the world goes to hell in a handbasket, which we don’t think will happen.”

The Democratic proposal falls short of what Wilson wants--a flat 75% cut in the car tax that would apply to individuals and businesses. When the cut was fully phased in after the turn of the century, vehicle owners would save a combined $3.6 billion a year.

Democrats have criticized Wilson’s plan, arguing that it would hamper the state’s ability to increase spending on schools. They say their proposal would protect schools and ensure that local government, now the recipient of $4 billion a year raised by vehicle license fees, receives its money.

Although most lawmakers support much of what Wilson proposes in his $76-billion state budget, Democrats and Republicans continue to fight over the size of a tax cut, and how to spend an unprecedented surplus of $4.4 billion.

As a result of the squabbling, Wilson and the Legislature failed to meet the state constitutional requirement that they have a new budget in place by July 1. Most state employees and welfare recipients continue to get paid whether or not a budget is in place. However, the state is barred from paying firms that do business with the state until a budget is approved.