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Ronald Reagan Presidential Library
Digital Library Collections
This is a PDF of a folder from our textual collections.
Collection: Reagan, Ronald: Gubernatorial Papers,
1966-74: Press Unit
Folder Title: Issues - Tax Reform
(3 of 5)
Box: P32
To see more digitized collections visit:
https://reaganlibrary.gov/archives/digital-library
To see all Ronald Reagan Presidential Library inventories visit:
https://reaganlibrary.gov/document-collection
Contact a reference archivist at: [email protected]
Citation Guidelines: https://reaganlibrary.gov/citing
National Archives Catalogue: https://catalog.archives.gov/
STATE OF CALIFORNIA
RONALD REAGAN, Governor
DEPARTMENT OF FINANCE
SACRAMENTO
OFFICE OF THE DIRECTOR
July 14, 1970
To:
Members of the Senate Finance Committee
From:
Verne Orr, Director of Finance
As you consider the Administration's tax reform proposals
(AB 1000 and AB 1001 by Assemblyman Bagley), there are two
points about which some confusion has arisen and on which I
should like to comment briefly. First, there have been
allegations the program benefits primarily the rich and,
second, statements have been made to the effect that the
program shifts $70 or $80 million in taxes from business to
the consumer.
I consider both allegations inaccurate. The following short
resume may help clear misunderstanding on both points:
I. Impact of Program on Individuals
The tax program has the following impact based upon
figures jointly developed by our office and the office
of the Legislative Analyst:
a. 58.6% of all Californians will receive a tax
reduction as a result of our proposed program,
22.8% will have a nominal change and only 18.6%
will have a tax increase.
b. 99% of all homeowners will receive a tax reduction
as a result of our program. The percentage of
property tax relief is considerably greater for the
lower priced home than for the higher priced home.
c. All renters will receive a $50 reduction on their
income tax. Many renters will receive a net reduction
in their total taxes. Only the wealthy renters pay
significantly more (over $27 per year)
Members of the Senate Finance Committee
Page 2
July 14, 1970
d. Higher taxes will be paid by the very wealthy--
particularly with capital gains.
II. Effect of the Program on Business VS. the Individual
It has been alleged "that the Governor's program, when it is
fully effective in 1972-73, provides tax reductions to business
in an amount $78 million greater than the amount of tax increase
imposed on business. Consumers pay $79 million more in taxes
than they receive in tax reductions." This statement is
totally incorrect.
This statement first appeared in Table 11 in the March 5, 1970
"Moscone Tax Reform Program: Explanation and Background
Information. It has been repeated many times since then,
always based on the same table. This table is incorrect for
the following reasons (a partial listing):
a. It incorrectly assumes that all sales taxes not paid by
business are paid by California individuals. Actually,
a significant portion is paid by neither, but by state
and local governments and tourists and visitors.
b. It incorrectly assumes that the entire expense of personal
income tax withholding falls on individual taxpayers.
Actually, unincorporated business income is subject to
withholding through estimated payments. Also, no
recognition is given to the increased costs to all
business employers in withholding personal income taxes.
C. It incorrectly assumes that all personal income taxes on
capital gains are paid by individuals. Actually, unin-
corporated businesses pay some of this amount.
d. It incorrectly assumes that the profits of unincorporated
business are not subject to increased personal income
taxes--they are.
e. It incorrectly assumes that the conformity feature of the
Governor's Tax Program has no impact on business- - it does.
Members of the Senate Finance Committee
Page 3
July 14, 1970
f. It incorrectly assumes that the savings from property
tax deductions from individual and corporate income
tax is almost entirely at the expense of the
individual taxpayer. This is not true.
The net benefit-cost impact of the Governor's tax program is
highly favorable to California individual taxpayers and basically
a break-even situation for business
taxpayers.
VERNE ORR
Director of Finance
cc: All Members of the Legislature
Tax Ketorm
July 15, 1970
SOAK THE MIDDLE INCOME CITIZENS
The latest so-called "Democratic alternative 'tax relief''
program is the third to be put forth by the Senate Democratic
leadership this year.
(#1 Moscore, GaBalves)
It
was announced July 13 by Senators George Moscone, Stephen Teale and
Assembly Democratic Minority Leader John Miller. Aside from the question
of whether it is
fiscally in balance, this so-called 'tax
relief' program actually is another gimmick effort to soak the middle
income, working taxpayer.
1. To finance the program, the Moscone-Miller 'tax reform' program
would Increase personal income taxes by about 10%. This would be
accomplished by narrowing the income tax brackets in the lower income
ranges. Instead of taxing the first $2,000 of taxable income at a 1%
rate, the Democratic proposal would lower this bracket to tax only
the first $1,500 of income at the 1% rate. The 2% rate would go into
effect at $1500 instead of at $2,000 (the current rate).
The net effect of this would raise personal income taxes on the
taxpaying, wage-earning working citizens of California by a total of
$135 million in the first year of operation. That amounts to about a
10% Increase in personal income taxes.
This is exactly opposite of the goal the Reagan administration is
trying to achieve--to lower the personal income tax burden of our citizens
It is incredible that the Democratic lawmakers could suggest a
10% Increase in personal income taxes. Only this year, the Reagan
2.
administration managed to REDUCE state income taxes by 10% through
a one-time income tax credit or rebate. Every taxpaying citizen
of California received this tax credit.
If Governor Reagan's tax reform is adopted, 99% of all California
homeowners will receive a net property tax reduction, ranging from 25
to 40%. The highest percentage reduction would go to the lower
priced homes.
Renters would receive a $50 income tax credit to give them a
share of this property tax relief and all California taxpayers
would get another 35 per cent one-time state income tax reduction
next April 15, to be applied against 1970 state income taxes. This
reduction will be made possible because Governor Reagan's plan
provides for returning to the taxpayers the so-called "windfall" of
tax revenue that will result when withholding of income taxes goes
into effect.
Unlike the Democratic "alternative", there will be NO NET TAX
increase under Governor Reagan's tax reform plan. But homeowners,
renters, middle and lower income taxpayers all will get relief, and
counties will be relieved of part of the burdensome cost of welfare
now being borne by local government.
2. The Legislative Counsel has pointed out the second major loophole
in the Democratic tax scheme.
Under this incredible feature, the Democrats propose to give a
refund or income tax credit of $70 to all renters. The refunds would
be granted whether the renter had any tax liability. Thus, even if a
renter's rent was paid for by someone else and he had no income, he
3.
would be given a "refund" of $70 under the Democratic proposal.
In effect, this means that non-working renters could get tax relief,
even though they paid no taxes!
The Legislative Counsel has questioned whether it is constitutional
to grant a refund that exceeds a person's tax. liability. His objection
is based on the constitutional provision that forbids making a gift
of public. funds.
Governor Reagan's tax reform proposal provides for a $50 tax credit
for renters. He could claim this credit by applying it against whatever
personal income tax he might owe. This would guarantee that tax relief
went only to taxpayers.
Under the Democratic proposal, renter relief claims would constitute
a major tax loophole because the revenue set aside to provide tax
relief actually might be diverted to non-taxpayers.
4.
3. A brief description of the Democratic "tax reform" program
announced July 13 would be: "For richer, for poorer--but forget
about the middle income taxpayers."
assemblyman
The changes proposed by Senators Moscone and N Miller July 13
follow the traditional path of those who favor big government, big
spending and welfare programs that benefit all except the working
taxpayer. It amounts to a wholesale effort to further Increase the
inequitable tax burden of middle income Californians from about
$8,500 to $25,000 annual taxable income.
Instead of the equitable fair-share tax reductions proposed by
Governor Reagan, the Democratic "alternátive" shortchanges the middle
income citizen. It favors both the highest income citizens and the
lowest income brackets. Examples:
1.) Under the Governor's tax reform program, a married homeowning
couple with two children and an adjusted gross income of $10,000
would receive a net tax reduction of $68 per year. Under the
Democratic program, the same couple would receive only $57.
2.) The same size family with an income of $12,500 would have an
average net tax reduction of $82 under the Governor's program. They
would get only $50 relief under the Democratic alternative.
3.) The same imbalance occurs at all income levels until you reach the
highest brackets. Then the Democratic program--which is supposed to
help the "poor" provides 20 times more tax relief for the wealthy than
the Governor's program.
4.) At the $75,000 income level, a homeowning couple with two children
5.
would pay $299 more net taxes per year under Governor Reagan's
program. Under the Democratic alternative, they would pay only
$19.
5.) A similar couple with an adjusted gross income of $100,000 per
year would pay $575 more per year in net taxes under Governor Reagan's
fair share property tax relief program, Under the Democratic
alternative, they would pay only $19 more.
RENTERS
The same imbalance occurs among renters. Under the Democratic
proposal--the one that is supposed to help the poor--the couple
with an adjusted gross income of $100,000 a year would pay only $20
a year more in net taxes. Under the Governor's more fair share tax
program, the $100,000 per year family would pay about $1,154 more
in taxes per year.
Tax Retorm
OFFICE OF THE GO! LRNOR
RELEASE: IMMEDIATE
Sacramento, California
Contact:
Paul Beck
445-4571
Governor Ronald Reagan, informed of
passage by the Senate of
his tax reform program, today issued the following statement:
"Today's passage by the Senate of this administration's long-
sought tax reform program represents a major step toward one of the
greatest victories ever achieved by the taxpayers of California,
"For the first time in many years the vast majority of our
citizens can now begin looking forward to significant reductions in
the overall tax burden they have, for too long, been forced to bear.
All that remains now is for the Assembly to concur in the Senate-passed
version.
"The program quarantees that the property tax bill of the
beleaguered California homeowner will be substantially reduced--by as
much as 40 percent ON the more modest home, and by an of 25
percent on homes 0. igher value.
"At the same time, no middle and lower income taxpayer whose gross
income is less than $32,000 a year will pay any increase whatsoever in
his income tax.
"Moreover, this program--unlike a flurr of other hurriedly-dreamed-
up, last-minute alternatives Shich have been proposed over the past
several months--will not increase the net tax burden on the people.
"What it will do is overhaul and modernize the state's archaic
tax structure by shifting the tax burden more equitably.
"Besides sharply reducing homeowner property taxes--and holding
them down-the program also will:
--Provide tax relief for renters
--Reduce the welfare cost burden on the property taxpayer
--And, help save California jobs by reducing the discriminatory
business inventory tax.
"I now want to urge the Assembly to act quickly so that substantial
tax relief for California's homeowners can, indeed, become a reality."
EG
QLbl
Background
mayal XDL
]
DRAFT
CALIFORNIA TAX BURDENS: TOTAL, INDIVIDUAL, AND BUSINESS
1. The conventional methods of determining a state's total tax burdens are:
(a) Taxes per capita - A state's total tax collections divided by
population.
On this basis California ranks extremely high among the
50 States -- No. 2 (New York No. 1)
(b) Taxes as a percent of personal income - A state's total tax
collections divided by its total personal income.
Again, California ranks extremely high, ranking No. 3.
(Behind Hawaii, Wyoming)
2. Tax burdens on individuals
Figures obtained in the application of the conventional methods of
measuring tax burdens include taxes that are not actually levied on
individuals since total tax collections include property, sales, income
and other taxes paid by business.
When the actual taxes paid by California families --- individual income,
property, sales, motor vehicle, and cigarette -- are compared with families in
other states an entirely different picture is obtained. It shows that
California families at the lower income levels have relatively lower
tax burdens than found in most other states. This is for a family of
four with adjusted gross incomes of $3,500, $5,000, $7,500, $10,000,
$17,500. Not until $25,000 and $50,000 of adjusted gross income does
California's tax burdengon a family of four become high relative to
other states.
3. Why are total California tax burdens high and family (or individual)
burdens relatively low?
This is because the California state-local tax structure falls heavily
on business activity. Taxes paid by business reflect in total tax
collections used in determining average tax burdens, but are excluded
along with exported taxes in measuring the direct impact of taxes
actually paid by individuals or families. Business pays:
- over 2/3rds of property taxes
- roughly 1/3 of sales taxes
- corporate income tax
- personal income tax (unincorporated businesses)
- local business license taxes
- motor vehicle taxes
- various other taxes.
4.
Comparisons of California total tax burdens and family burdens VS.
other states.
California Ranking
% Above or Below
Among All States
All-State Average
Total Taxes, Fiscal Year 1968
Per Capita
2
Above 44%
Per $1,000 Personal Income
3
Above 24%
Family Burdens
(Adjusted Gross Income, Family
of Four, Calendar Year 1968)
$3,500
33
Below 6%
5,000
36
Below 10%
7,500
37
Below 11%
10,000
35
Below 9%
17,500
30
Below 2%
25,000
23
Above 6%
50,000
10
Above 21%
Sources:
"Interstate Tax Burdens in Family Tax Burdens", National Tax Journal Decem-
ber 1969, Governmental Finances in 1967-68; Bureau of Census, U.S. Depart-
ment of Commerce.
5. Comparisons of California total property tax burdens and family burdens
VS. other states.
The comparisons below show that while California ranks very high in total property
taxes per capita and as a percent of personal income (No. 1 and No. 4) its bur-
dens on a family of four with adjusted gross income of $10,000 are rather low (29th)
when compared to other states. This phenomenon is due to the fact that California
businesses pay a much greater proportion - over two-thirds - of total property
taxes than occurs in other states, leaving homeowner property tax burdens
relatively lower than found in most other states.
California Ranking
% Above or Below
Total Property Taxes, Fiscal Year 1968
Among All States
All-State Average
Per Capita
U.S. Average
$138.83 California
California
226.18
1
Above 63%
Wyoming
207.87
2
Above 50%
Massachusetts
204.02
3
Above 47%
New York
192.25
4
Above 38%
Per $1,000 Personal Income
U.S. Average
44.39
Wyoming,
69.21
1
Above 56%
Montana
68.48
2
Above 54%
South Dakota
68.44
3
Above 54%
California
61.92
4
Above 40%
Nebraska
60.60
5
Above 37%
Family Property Tax Burden
(Adjusted Gross Income of $10,000,
family of four, calendar year 1968)
New Jersey
$662
1
Maryland
566
2
Maine
557
3
Wisconsin
540
4
Indiana
523
5
California
302
29
FINANCING PROPERTY TAX RELIEF
"Although it is traditionally described as a 'soak the poor'
tax, our studies have shown that, in California, the sales tax can be
considered a proportional tax if a person's net resources are used as
the criterion of ability to pay. The basic necessities of life--food,
shelter, and medical services and drugs--are exempt from the sales
tax in this State. With these items removed from the tax base, this
revenue source loses much of its regressive character."
"I think that it is past time for us to recognize that the sales
tax is an equitable revenue source in a balanced revenue structure.
By using the sales tax to substitute for a portion of the property tax,
we can improve California's entire revenue system.'
"Through the sales tax we place people on the tax roles as soon
as they become consumers in California."
"The sales tax is geared directly and immediately to population
growth, and as we all know, it is this fantastic rate of population
increase that is a major source of our fiscal problems."
"The property tax can probably never be made perfect, but it can
be improved to the extent that it is an acceptable part of a modern
revenue system. Reduction of this tax burden is of the utmost urgency
if the property tax is to survive as something more than an historical
curiosity.'
"We will make every effort to achieve this goal in 1967, but I
would remind you that tax reform is among the most difficult of political
feats. In his three years in office, President Kennedy was unable
to get a tax reform bill through Congress
11
"With your support, and the support of other concerned individuals
and groups throughout the State, I am hopeful that we can finally
achieve our goal this year. 11
Speech "A New State Government and an Old State Problem"
By Jesse M. Unruh, Speaker of the Assembly
San Diego Open Forum,
San Diego, California
January 8, 1967
FOR IMMEDIATE RELEASE
Senator
today denounced the latest Democratic
"tax reform" program as a "discredited, gimmicky plan which would
raise the personal income taxes of the working citizens of California
by $135 million a year."
"A key part of the program announced by Senators Moscone, and
Teale, and Assemblyman John Miller, Democratic Minority Leader, is
a narrowing of the tax brackets in the lowest income tax ranges,"
said.
"This would mean an overall personal income tax INCREASE of
$135 million. That's almost a 10 per cent personal income tax increase,
based on the revenue level of 1969-70," Senator
said.
"It is incredible that the Democratic leadership would seek to
foist this kind of a tax increase on the working taxpayer."
"Governor Reagan has been trying to reduce the personal income
tax burden and this would be accomplished in a fair and equitable
manner under his tax reform program.'
"This year, citizens of California received a one-time tax
reduction of 10 per cent in their personal income taxes. If the
Governor's tax reform program is approved, there will be another
35 per cent 'forgiveness' or tax reduction on every citizen's 1970
State income tax bill next April 15."
"The Democratic approach is exactly the opposite. It would raise
personal income taxes. I believe the citizens of California cannot
afford that kind of an increase in their tax burden."
2.
Senator
noted that Governor Reagan's homeowner
property tax relief program is financed by a one cent increase in the
sales tax, but this would be offset by the 27% reduction in property
taxes and by the $50 tax credit provided for renters.
"The sales tax is a far more equitable way of financing homeowner
tax relief," Senator
declared. "It is fair because
the sales tax is not collected on food, medical expenses, shelter,
prescription drugs or gasoline. il
STAFF DRAFT
To:
Members of the Senate Finance Committee
From: Verne Orr, Director of Finance
As you consider the Administration's tax reform proposals (AB 1000
and AB 1001 by Assemblyman Bagley) there are two major points which I wish to
call to your attention as emphatically as possible. First, the allegation that
the program benefits primarily the rich is simply not true and second, the
frequently repeated statement that the tax program shifts between 70 and 80
million dollars in taxes from business to the consumer is equally false. I
would like to comment in a little more detail on each of these points in the
following material:
I. Impact of Program on Individuals.
The tax program has the following impact based upon figures
jointly developed by our office and the office of the Legis-
lative Analyst:
a. 58.6% of all Californians will receive a tax reduction
as a result of our proposed program, 22.8% will have a
nominal change and only 18.6% will have a tax increase.
b. 99% of all home owners will receive a tax reduction as a
result of our program. The percentage of property tax
relief is considerably greater for the lower priced home
than for the higher priced home.
C. All renters will receive a $50 reduction on their income
tax. Many renters will receive a net reduction in their
total taxes. Only the wealthy renters pay significantly
more (over $27 per year). Renters who pay no income tax
cannot be helped without violating the State Constitution.
Many of these individuals have no income tax liability only
because the 1967 tax bill eliminated their liability.
-2-
d. Higher taxes will be paid by the very wealthy -- particularly
with capital gains.
II. Effect of the Program on Business vs. the Individual.
It has been alleged "that the Governor's program, when it is
fully effective in 1972-73, provides tax reductions to business
in an amount $78 million greater than the amount of tax increase
imposed on business. Consumers pay $79 million more in taxes
than they receive in tax reductions." This statement is totally
incorrect.
This statement first appeared in Table 11 in the March 5, 1970
"Moscone Tax Reform Program: Explanation and Background Informa-
always based the same table
tion." It has been repeated many times since then This table
is incorrect for the following reasons (a partial listing):
1. It incorrectly assumes that all sales taxes not paid by
business are paid by California individuals. Actually a
significant portion is paid by neither, but by state and
local governments and tourists and visitors.
2. It incorrectly assumes that the entire expense of personal
income tax withholding falls on individual taxpayers. Act-
ually, unincorporated business income is subject to with-
holding through estimated payments. Also, no recognition
is given to the increased costs to all business employers
in withholding personal income taxes.
3. It incorrectly assumes that all personal income taxes on
capital gains are paid by individuals. Actually, unincorp-
orated businesses pay some of this amount.
4. It incorrectly assumes that the profits of unincorporated
-3-
business are not subject to increased personal income
taxes -- they are.
5. It incorrectly assumes that the conformity feature of
the Governor's Tax Program has no impact on business
-- it does.
6. It incorrectly assumes that the savings from property
tax deductions from individual and corporate income tax
is almost entirely at the expense of the individual
taxpayer. This is not true.
Summary of Net Cost-Benefit Impact of AB 1000-1001
A more realistic allocation of the tax increases and reductions proposed
in AB 1000-1001 between California individual taxpayers and business can be found
on the attached table. It shows that under the Governor's tax program:
1. The impact on individual California taxpayers is a substantial
net benefit of at least $55 million and up to $270 million if
revenues from personal income tax withholding are excluded from
the allocations.
2. The impact on business ranges from an estimated net increased
cost of $43 million to a net benefit of $44 million. (The higher
figure results from excluding personal income tax withholding
revenues from the computation).
3. The net benefit-cost impact of the Governor's tax program is
highly favorable to California individual taxpayers and basically
a break-even situation for business taxpayers.
CC
all members of the Legislature
Schedule II
ALLOCATION OF TAX BURDENS AND BENEFITS - BUSINESS VS. INDIVIDUALS
(AB 1000-1001 as amended June 25, 1970)
(in millions of dollars)
Assumption #1: Allocating all tax reductions and new revenues (whether
actual tax increases or not) between California individuals and businesses. *
California
Individuals
Business
(range)
(range)
Benefits
619 - 628
271 - 280
Revenue Increases
564 - 512
314 - 262
Net Benefits
55 - 116
-43 -
18
(Low)
(High)
(Low)
(High)
*This includes allocating revenues from personal income withholding between
individual (85%) and business (15%) although such revenues are not derived
from increased tax liabilities, Increased sales tax paid by state and
local governments and non-Californians are also excluded. (See Schedule III
for further detail).
Assumption #2: Allocation of tax reductions and actual tax increases bet-
ween California individuals and businesses. *
California
Individuals
Business
(range)
(range)
Benefits
619 - 628
271 - 280
Tax Increases
410 - 358
288 - 236
Net Benefits
209 - 270
-17 -
44
*This excludes revenues from withholding since it does not increase tax
liabilities and increased sales tax paid by state and local government and
non-Californians. (See Schedule III for further detail).
6/29/70
Schedule III
DETAIL OF ALLOCATION OF TAX BURDENS AND BENEFITS - AB 1000-1001
BUSINESS VS. INDIVIDUALS
(in millions)
California
Total Individuals Businesses Other
Property Tax Relief
Home awner Examption
H. 0. E.
$461
$461
--
-
Renters
95
95
--
B. I.E B Business I. Imentory Everything
135
--
$135
---
Welfare
186
56 (30%)
130
(70%)
-
Open Space
15
-
15
-
Senior Citizens
7
7
-
-
$899
$619
$280
-
If Property Tax
Allocation 35%-65%
$899
$628
$271
-
Financing
Sales Tax Income (See Sched. IV) $525
$315 (60%)
$157
(30%)
$53
(10%)
Bank and Corporation Income
43
-
43
-
Depletion Conformity
5
-
5
--
Income Tax
Withholding
170
144
26
--
Rate Increase
58
49
9
Capital Gains Change
26
23
3
--
Selective Conformity
21
13
8
-
Savings From Interaction
27
15
12
--
Interest Saving From W.H.
10
8
2
-
Withholding
Sub-Total
$885
$567
$265
$53
Administrative Cost Offset
-6
-3
-3
|
Total
$879
$564
$262
$53
If Sales Tax Split
50%-40%-10% (See Schedule IV)
--
-52
+52
--
Total
879
512
314
53
If W.H. Excluded
-
-154
-26
170
Revised Estimates
$879
$358
$288
$223
Schedule IV
ALLOCATION OF CALIFORNIA SALES TAX RECEIPTS BY SOURCE*
PURCHASES BY CALIFORNIA STATE
PURCHASES BY INDIVIDUALS
PURCHASES BY BUSINESSES
AND LOCAL GOVERNMENTS
Tourists
CALIFORNIANS
NON-CALIFORNIANS Visitors
30% - 40%
6%
60% - 50%
4%
- Construction materials
- Construction materials
Furniture
- Restaurant meals
(including Fed. projects)
- Machinery, e.g., power generators
Clothing
- Sporting goods
- Mfg. machinery
Autos, trucks (not
- Office equipment & furnish-
- Office supplies
- Clothing
used commercially)
ings
- Autos, trucks
Appliances
- Personal property
- Fixtures
leased
- Office supplies
- Heavy equipment
Jewelry
- Alcoholic beverages
I
- Alcoholic Bev. (expense
Household supplies
- Office equipment and furnishings
accounts)
I
Restaurant meals
- Materials consumed in manu-
- Alcoholic beverages
facturing process
- Aircraft
- Autos, trucks
- Farm implements
- Hardware
- Heavy equipment
- Personal property
leased
- Restaurant meals (expense
accounts)
Exempt
Exempt
- Furniture of hotels, apts.,
- Food - off premises
- Food - off premises
etc.
- Medicines & prescript
- Medicines & prescript.
- Aircraft
- Shelter
- Personal property leased
TAXES PAID DEDUCTIBLE FROM
PURCHASES BY CALIFORNIA STATE AND
TAXES PAID DEDUCTIBLE
TAXES PAID DEDUCTIBLE
INCOME TAXES AS A BUSINESS
LOCAL GOVERNMENTS - CITIES, COUNTIESFROM FEDERAL AND CALI-
FROM FEDERAL AND OTHER
EXPENSE
SCHOOL DISTRICTS, SPECIAL DISTRICTS
FORNIA INCOME TAXES
STATE'S INCOME TAXES
*Schedule IV shows the four basic types of taxpayers subject to the California sales tax levies, with examples of
kinds of taxable purchases made. It is estimated that business purchases comprise 30-40% of taxable sales, pur-
chases by individual Californians -- 50-60%, purchases by state and local government -- 6%, purchases by non-
Californians (tourists, visitors) -- 4%.
Estimated Number of People and Family Units
Who Would Experience Net Tax Savings or Increases Under
AB 1000 and AB 1001
Red figure all 3 of last column
thip youp
Total Population
(in thousands)
Net Tax
Nominal
Net Tax
Savings
Tax Change*
Increase
Total
1. Families
a. Homeowners
with capital gains
955 91.8
-
85 8.2
1,040
without capital gains
8,947 19.7
-
31 0.3
8,978
subtotal
9,902 98.8
I
116
11
10,018
b. Renters
with capital gains
-
78
78 214
287
287 78.6
365
without capital gains
!
1,000
2,731
46.9
4,829
3,098 531
5,829
subtotal
!
1,078
Q
2,809
45.4
5,116
3,385 546
6,194
23+
Family totals
61.1
Population
9,902 10,980
17.3
5,232
2116
6
2,809
3,501
16,212
Family Units
2,676 2,968
759 17.3
1,414
947 21.6
4,382
2. Single and others
a. Homeowners
with capital gains
619 3 -
3
47
64
without capital gains
885 9.7
-
3 0.3
888
subtotal
94699
6 0.6
952
b. Renters
with capital gains
65 57.5 65
-
48
48 425
113
without capital gains
684 27.894
1,707
67.8
1,625
128 51
2,519
subtotal
749 8.959
1,707 64.9
1,673
176 6. 6.7
2,632
Household totals
47-3
Population
47.6
51
1,474 1,695 1,656
1,905
1,707
1,679
182
3,584
Household Units
1,484 47.6
1,460
158
3,116
3. Grand Total
38.6
22.8
22.
18.6
Population
11,59712,885
4,516
6,911
3,683
19,796
Household Units
4,150 4,624
2,243
29.9
2,874
1,105
7,498
*Plus or minus $10
Tax Reform
Morethi handout
HISTORY OF TAX REFORM IN 1971
The Democrats in the Assembly have made every effort to
achieve tax reform in 1971.
- THE DEMOCRATIC BILL WAS INTRODUCED ON MARCH 25.
The Governor's program was intro-
duced on May 26 in the Senate and
not until June 4 in the Assembly.
---- THE DEMOCRATIC PROGRAM HAS PASSED TWO COMMITTEES AND
IS NOW ON THE FLOOR OF THE ASSEMBLY.
The Governor's program is stalled in
committee and has heavy opposition.
-- The Democrats have made every effort to compromise
with the governor on this issue - the bill has been
amended twice since it was introduced to meet some
of the Governor's objections:
(1) The bill as originally introduced exempted
the home structure from the property tax.
The Governor thought this was too
much relief for the homeowner.
The Democrats have reduced the relief to a
flat $2500 assessed value exemption -
growing in $100 increments each year.
(This still is meaningful relief for the
homeowner - affording at least $200 each
year in added relief for each homeowner.)
(2) The bill as originally introduced eliminated
the oil depletion allowance.
The Governor opposed this.
The Democrats have now changed this so the
repeal is phased out over 7 years.
(3) The bill as introduced reduced the capital gains
income tax exemption from 50% to 15%.
The Governor opposed this.
The Democrats have attempted to meet him part
way by reducing this now to 25%.
(4) The bill as introduced provided for the state
to take over the cost and administration of
welfare - to take this burden off the back
of the property taxpayer.
The Governor opposed this.
The Democrats have now modified our program on
this to conform to the Governor's formula for
welfare tax relief, providing that the state
will pick up 60% of the county cost after the
first 25¢ of the tax rate welfare allocation.
(5) The bill as introduced did not give local
governments money to fund the farm land assessment
reductions under the Williamson Act.
The Governor objected to our bill
because we did not include this
provision.
The Democrats have now amended Assemblyman
Mobley's AB 68 into our bill to take care
of this demand.
(6) The bill as introduced proposed to use the
one-time money from withholding for property
tax relief.
The Governor objected.
The Democrats have given in on this point and
have taken the formula in the Governor's bill
on withholding, including 20% forgiveness.
1971
TAX PROGRAM
Estimated Fiscal Impact
(In Millions)
Property Tax Relief
1970-71
1971-72
1972-73
1973-74
1.
Homeowner's exemption -
$1,000 plus 20% -- owner-
occupied multiples receive
$1500 exemption.
$388
$422
$461
$502
2. Renter relief - $50 per person
85
88
90
92
3.
Inventory tax - at 50% -
starts 1-1-71
-
64
122
137
4. Welfare, Medi-Cal property
tax relief
164
191
221
256
5.
Open space program
8
13
15
17
Totals
$645
$778
$909
$1,004
Revenues
1.
Sales tax increase of $.01 -
starts 7-1-70
$450
$480
$515
$550
2.
Bank and Corporation tax up
1/2% - starts 7-1-72
-
10
52
53
3. Limit oil depletion
15
16
17
18
4. Capital Gains - starts 1-1-70
20
23
26
30
5. Income tax changes, withholding
150
208
170
178
Add 11% rate 1-1-71; Add 12% rate
1-1-73
-
43
68
96
6.
Selective conformity with Federal
tax reform including minimum
income tax
13
15
19
26
7.
Savings from interaction
-
35
43
49
Totals
$648
$830
$910
$1,000
1.
Program includes statewide property tax for schools which equalizes first
$2.05 of existing school property taxes.
2.
Expenditure control program includes expenditure limitations for school
districts and counties. Requires permissive overrides for cities to be
subject to referendum.
3. To increase the visibility of the state-financed homeowner exemption, the
existing exemption ($750) and the increased exemption would be computed as
a reduction in net tax on the face of each tax bill.
TAX REFORM PROGRAM
I. Property Tax Relief (Outgo)
1. Homeowner's Property Tax Relief
The homeowner's property tax exemption would be increased
from $750 to an average of about 40% of each homeowner's
assessed valuation. The amount of the relief would vary,
according to area and current tax rate, --- but the total
relief would average about 26% over and above the 14% now
provided by the state for the current $750 exemption.
Specifically, the homeowner's exemption would be increased to
$1,000 of assessed value plus an additional reduction of
20% of the remaining assessed value of the home.
As an example, a home with a market value of $20,000, and
a tax rate of $10, would have taxes of roughly $460 per year.
The total state contribution to the tax bill, on the average,
would be about $190, or over 40% off. For a home with a market
value of $15,000, and a property tax of $345, the total state
contribution would total $149, or 43% off. (For additional
examples, see impact tables.)
Owner-occupied multiple dwellings such as co-ops and triplexes
(which are not covered by Proposition 1-A) and farms,
condominiums, residences above stores, etc. (which currently
are covered) would all receive an exemption of $1,500.
2. Renter Relief
The program provides the equivalent of property tax relief for
renters. Each renter who files an income tax return will receive
$50 as a credit against his tax. If he owes less than $50, his
entire income tax will be removed. This relief is in addition
to the double standard deduction for renters which was provided
in 1968.
3. Welfare, Medi-Cal Property Tax Relief
Local property taxes for the state's social welfare programs
vary considerably from county to county. The proposed program
would equalize these costs and relieve a portion of these taxes
by (a) requiring counties to pay 100% up to a tax rate of 25¢
per $100 of assessed valuation for the local share of categorical
aid, (b) dividing remaining costs of the county's share of
categorical aid at a ratio of 70% state and 30% county.
-2-
Additionally, the counties would no longer be required to
participate financially in the Medi-Cal (Title XIX) program.
Current fiscal year county costs for this program totals
$105.2 million. The State of California would, however, no
longer contribute to any county medical indigent programs.
The state is budgeted at $35 million for this program for the
current fiscal year. The net county tax relief would total
over $70 million in the forthcoming fiscal year.
The advantages of this proposal include: (a) tax relief to
all counties from 1.5¢ to 37.3¢ (see attached table); (b) restores
full local control to counties in the management and design of their
medically indigent programs; (c) encourages counties to operate
more efficiently; and (d) provides administrative simplification
and substantial cost savings in Health Care Services.
Finally, this proposal would provide a uniform sharing ratio of
25% county, 75% state for the Categorical Aid programs (which
now have five different sharing ratios). This proposal would
(a) simplify welfare administration; (b) provide tax relief for
counties with higher tax rates; (c) discourage the movement of
caseload to categories offering the most favorable cost ratios.
4. Inventory Tax
The proposed program would finance a permanent reduction in the
business inventory tax of 50%. The business inventory tax
reduction is currently 30%, but there is no financing provided
by law after 1971-72 for more than a 15% reduction. This proposal
would provide a very powerful stimulus to the economy and would
reduce the loss of jobs occasioned by the annual removal of
inventories from California to escape this tax. The state will
pay for the loss of assessed value to local government to prevent
the shifting of this exemption to other property taxpayers.
5. Open Space Program
The proposed program would mandate the availability of the use-
assessment provisions of the Williamson Land Conservation Act and
provide replacement revenue for the counties. This proposal would
help preserve the rapidly-disappearing open spaces in California.
There would be considerably less pressure for owners of
agricultural and other open space lands to sell their properties
to the developer due to increasing tax assessments. The program
will pay $1.50 per acre to counties and school districts for
prime agricultural land in the program and $.50 per acre for
other land under restriction.
-3-
6.
School Equalization Plan
The proposed program includes a special school equalization plan
which will produce additional funds for about 80% of the
state's 1144 school districts. The proposal would raise about
$60 million from 20% of the state's wealthiest school districts
which generally have very heavy concentrations of industry and
few children. The program would increase the foundations support
program by placing the first $2.05 in the existing school tax
equally behind all the school children in California by means
of a statewide property tax.
7. Expenditure Control
The proposal includes a new program to put an expenditure limit
on counties and school districts (which collect 85% of the
property taxes) to guarantee that property taxes will not
increase after the state finances a 40% reduction. School
district expenditures would be adjusted annually by a factor
based on average daily attendance and the cost-of-living.
(Consumer Price Index - Services Index). General county
expenditures would be adjusted annually by the population and
the cost-of-living. Additionally, the county budgets for
welfare would include a factor for the welfare caseload and the
state relief of local property taxes for welfare. Above these
levels, the expenditure levels could only be increased by a vote
of the people.
Tax rate limits have been failures in controlling increases in
property taxes. Data developed indicate expenditure limits, while
being more rational limits, will also be more effective. Studies
show that property tax increases for schools over the past 10
years would have been reduced had an expenditure limit, rather
than tax rate limits, been in effect.
Mechanically, expenditure limits are effective devices to insure
that property tax rates are kept under control. When schools
or counties can only expend a fixed amount of money if more state
money is spent in such programs, the local share must drop
correspondingly. This automatically precludes the ability of local
government to use property tax relief money for additional spending
and, in fact, forces local government to use property tax relief
money to reduce taxes.
Although cities do not get any direct property tax relief funds
from this program, it is proposed to tighten the ability of such
jurisdictions to raise property taxes. As cities in almost all
cases are subject to property tax rate limits, theprogram reinforces
these limits by allowing local referendum of any new permissive
tax rate overrides allowed cities.
-4-
II. Revenue Changes
1. Sales Tax
The state sales tax would be increased from 4% to 5% on all
sales taxable transactions. This proposal would not remove any
current sales tax exemptions such as food, housing or prescription
drugs. Studies show that these exemptions remove most of the
regressivity of this tax.
2. Bank and Corporation Tax Increase
Effective July 1, 1972, the state's bank and corporation franchise
tax rate will be increased from 7% to 7½%. It is equitable that the
business community share in the costs of a program of property
tax relief as the benefits of such a program will be widely
distributed among all segments of the state's economy. The
timing of this increase has been set to correspond to the increase
in the cost of the inventory tax exemption for the 1972-73 fiscal
year. Under present law, the exemption will drop back by 15% if
increased financing is not forthcoming in 1972.
3. Restrict Oil Depletion Allowance
At the present time, net income from certain natural resource
production, such as oil and gas, enjoy a tax deduction not
available to any other segment of the state's economy. Oil and
gas companies are allowed to deduct 27½% of their gross revenue,
up to 50% of their net, from income subject to tax.
While tax laws should allow deductions of all costs associated
with theproduction of income, under the present operation of the
depletion allowance, oil and gas companies are allowed deduction
substantially in excess of costs -- up to 40 times their costs in
some instances.
In order to remove a major part of this inequity, the depletion
allowance will be limited so the deduction will not exceed five
times the cost of the property being depleted.
4. Capital Gains
The taxes on capital gains would be adjusted to minimize the impact
of inflation by basing the tax on the holding period of the gain.
Gains held less than one year would be taxed as regular income
and the tax would be reduced progressively with the length of the
holding period. Shorter holding periods are more characteristic
of speculation and less subject to the erosion of inflation. The
-5-
following chart indicates the proposed schedule which is similar
to the California schedule prior to 1959.
Holding
Amount
Revenue
Period
Taxed
Change (millions)
0-1
100%
$ 9.3
1-2
80%
8.9
2-5
65%
10.0
5-10
50%
--
+ 10 years
40%
-8.0
$20.2 million
5. Income Tax Changes
The proceeds of the additional, on-going revenues from withholding
of personal income taxes would be used in lieu of an approximate
10% increase in tax rates. Withholding would start January 1,
1971. About $400 million, or 36% of the April payment for 1970 would
be "forgiven" and would not be collected. This represents the
so-called windfall from double taxation. There would be no
increase in personal income tax rates for joint returns below
$32,000 and single returns below $16,000.
An 11% bracket would be added for incomes above $32,000 and, in
1973, a 12% bracket would be added for incomes above $36,000.
This final increase is staged to correspond with the increased
costs of property tax reduction in 1972-73.
6. Conformity With Federal Tax Reform
In 1969 the most far-reaching changes ever made in the federal
income tax structure were enacted into law. Those changes which
are appropriate for California are included as a part of the tax
reform program.
ESTIMATED IMPACT OF GOVERNOR'S TAX PROGRAM
ON MARRIED COUPLES WITH TWO CHILDREN
HOMEOWNER
Personal Income Tax
Property Tax
11% & 12%
Interaction
Total
Additional
Additional
Reduced
Total
Tax
Capital
of other
Income
Sales
Homeowners
Welfare
Net
Income
Rates
Gains
changes
Tax
Tax
Exemption
Tax
Change
Without Capital Gains
$5,000
-
------
----
----
$22
-$70
-$6
-$54
7,500
31
-82
-8
-59
10,000
-------------------------
----
$2
$2
39
-99
-10
-68
12,500
-----
------
3
3
47
-120
-12
-82
15,000
-------------------------
----
4
4
54
-134
-14
-90
17,500
-
-
6
6
56
-152
-16
-106
20,000
----
-
8
8
62
-169
-18
-117
25,000
------
11
11
69
-208
-23
-151
50,000
$180
----
36
216
89
-346
-40
-81
75,000
617
----
43
660
126
-435
-52
299
100,000
1,020
61
1,081
209
-638
-77
575
With Capital Gains
$10,000
-
$3
$2
$5
$39
-$99
-$10
-$65
15,000
-----
5
4
9
54
-134
-14
-85
---
20,000
13
8
21
62
-169
-18
-104
-
25,000
20
11
31
69
-208
-23
-131
50,000
$180
36
36
302
89
-346
-40
5
75,000
617
154
43
814
126
-435
-52
453
100,000
1,020
251
61
1,332
209
-638
-77
826
NOTE: Standard deduction used for joint returns below $10,000. Average itemized deductions used otherwise.
1/30/70 (70/5)
ESTIMATED IMPACT OF GOVERNOR'S TAX PROGRAM
ON SINGLE INDIVIDUALS
HOMEOWNER
Personal Income Tax
Property Tax
11% & 12%
Interaction
Total
Additional
Additional
Reduced
Total
Tax
Capital
of other
Income
Sales
Homeowners
Welfare
Net
Income
Rates
Gains
changes
Tax
Tax
Exemption
Tax
Change
Without Capital Gains
$3,500
-------------------------
-
------
---
$15
-$61
-$5
-$51
5,000
-----
-------------------------
----
20
-66
-6
-52
7,500
-------------------------
-----
$3
$3
28
-84
-8
-61
10,000
-------------------------
----
4
4
35
-98
-10
-69
12,500
---
-----
5
5
42
-102
-10
-65
15,000
----
----
9
9
47
-143
-15
-102
17,500
---
-----
12
12
50
-158
-17
-113
20,000
$4
---
16
20
55
-177
-19
-121
25,000
84
---
22
106
61
-222
-25
-80
50,000
488
-----
40
528
78
-370
-43
193
75,000
899
---
49
948
111
-466
-55
538
100,000
1,300
-------------------------
70
1,370
184
-682
-83
789
With Capital Gains
$10,000
----
$8
$4
$12
$35
-$98
-$10
-$61
15,000
-----
20
9
29
47
-143
-15
-82
20,000
$4
40
16
60
55
-177
-19
-81
25,000
84
63
22
169
61
-222
-25
-17
50,000
488
150
40
678
78
-370
-43
343
75,000
899
216
49
1,164
111
-466
-55
754
100,000
1,300
320
70
1,690
184
-682
-83
1,109
NOTE: Standard deduction used for single returns below $7,500. Average itemized deductions used otherwise.
1/30/70 (70/5)
ESTIMATED IMPACT OF GOVERNOR'S TAX PROGRAM
ON SINGLE INDIVIDUALS
RENTER
Personal Income Tax
Interaction
Additional
Total
11% & 12%
Capital
Rent Relief
of other
Total
Sales
Net
Income
Tax Rates
Gains
Credit
changes
Income Tax
Tax
Change
Without Capital Gains
$3,500
-------------------------
----
-$5
------
-$5
$15
$10
5,000
----
----
-40
-40
20
-20
7,500
----
-50
-$1
-51
28
-23
10,000
----
-50
-2
-52
35
-17
12,500
---
-50
-3
-53
42
-11
15,000
----
-50
-4
-54
47
-7
17,500
-
-50
-5
-55
50
-5
20,000
$4
-50
-6
-52
55
3
25,000
84
-50
-7
27
61
88
50,000
488
-50
-9
429
78
507
75,000
899
---
-50
-13
836
111
947
100,000
1,300
----
-50
-22
1,228
184
1,412
With Capital Gains
$10,000
---
$8
-$50
-$2
-$44
$35
-$9
15,000
----
20
-50
-4
-34
47
13
20,000
$4
40
-50
-6
-12
55
43
25,000
84
63
-50
-7
90
61
151
50,000
488
150
-50
-9
579
78
657
75,000
899
216
-50
-13
1,052
111
1,163
100,000
1,300
320
-50
-22
1,548
184
1,732
NOTE: Standard deduction used for single returns below $7,500. Average itemized deductions used otherwise.
1/30/70 (70/5)
ESTIMATED IMPACT OF GOVERNOR'S TAX PROGRAM
ON MARRIED COUPLES WITH TWO CHILDREN
RENTER
Personal Income Tax
Interaction
Additional
Total
11% & 12%
Capital
Rent Relief
of other
Total
Sales
Net
Income
Tax Rates
Gains
Credit
changes
Income Tax
Tax
Change
Without Capital Gains
$3,500
-
-
--------
-
--------
$16
$16
5,000
----
22
22
7,500
----
-$4
-$4
31
27
10,000
-------------------------
----
-43
-$1
-44
39
-5
12,500
-
----
-50
-1
-51
47
-4
15,000
---
----
-50
-2
-52
54
2
17,500
-------------------------
-
-50
-3
-53
56
3
20,000
-----
-------------------------
-50
-4
-54
62
8
25,000
-50
-5
-55
69
14
50,000
$180
-50
-11
119
89
208
75,000
617
----
-50
-15
552
126
678
100,000
1,020
---
-50
-25
945
209
1,154
With Capital Gains
$10,000
---
$3
-$46
-$1
-$44
$39
-$5
15,000
----
5
-50
-2
-47
54
7
20,000
---
13
-50
-4
-41
62
21
25,000
20
-50
-5
-35
69
34
50,000
$180
86
-50
-11
205
89
294
75,000
617
154
-50
-15
706
126
832
100,000
1,020
251
-50
-25
1,196
209
1,405
NOTE: Standard deduction used for joint returns below $10,000. Average itemized deductions used otherwise.
1/30/70 (70/5)
Welfare/Medi-Cal Tax Relief Measure
(1969/70 Data)
.25/70-30 -- Equalization
&
25/75 Uniform Sharing Ratio
A. Highest - 50 Cents and Over
Property Tax Rate Reductions (Cents)
Existing Total
County
Welfare
Medi-Cal
Total
Property Tax Rate
1. Stanislaus
35.7
37.3
73.0
$10.74
2. San Francisco
37.7
28.0
65.7
12.09
3. Tulare
28.6
34.3
62.9
8.76
4. Yuba
25.1
34.3
59.4
8.58
B. Next Highest - 40 to 49 Cents
5. Humboldt
13.5
34.7
48.2
9.53
6. Kings
20.0
27.5
. 47.5
8.66
7. Mendocino
14.4
32.5
46.9
8.86
8. Fresno
31.2
12.5
43.7
9.68
9. Madera
14.7
27.8
42.5
7.32
C. Third Highest - 30 to 39 Cents
10. Merced
20.0
19.2
39.2
8.87
11. Sonoma
21.4
15.4
36.8
9.99
12. Butte
8.4
27.9
36.3
8.69
13. Trinity
1.5
34.8
36.3
6.75
14. San Joaquin
28.0
7.9
35.9
10.67
15. Sacramento
33.9
1.9
35.8
11.38
16. Tuolumne
9.9
23.2
33.1
8.21
-2-
Property Tax Rate Reductions (Cents)
Existing Total
County
Welfare
Medi-Cal
Total
Property Tax Rate
17. Alameda
13.0
19.6
32.6
$11.22
18. Imperial
16.7
14.2
30.9
9.34
19. Lassen
4.8
25.2
30.0
9.02
20. Solano
17.2
12.9
30.1
8.64
D. Fourth Highest - 20 to 29 Cents
21.
Del Norte
9.4
20.3
29.7
9.58
22.
San Luis Obispo
10.7
17.8
28.5
9.71
23. Kern
9.7
17.7
27.4
8.78
24. San Bernardino
13.7
13.3
27.0
10.20
25.
Siskiyou
(.3)
27.0
26.7
7.85
26. Shasta
9.9
16.7
26.6
7.78
27.
Santa Cruz
(.8)
27.3
26.5
9.46
28.
Los Angeles
14.2
11.1
25.3
9.93
29. Nevada
(4.2)
29.4
25.2
6.69
30.
Contra Costa
12.9
12.2
25.1
11.51
31.
Napa
2.7
21.7
24.4
9.68
32. Tehama
1.8
21.9
23.7
8.03
33. Yolo
9.6
13.9
23.5
9.52
34. Placer
5.0
18.2
23.2
8.58
35. Calaveras
(2.5)
25.5
23.0
6.92
36.
Santa Clara
7.3
14.4
21.7
10.38
37. Modoc
(1.7)
23.3
21.6
7.04
38. Inyo
(2.2)
23.6
21.4
7.13
39. San Diego
8.0
13.2
21.2
9.33
-3-
Property Tax Reductions (Cents)
Existing Total
County
Welfare
Medi-Cal
Total
Property Tax Rate
E. Fifth Highest - 10 to 19 Cents
40. Plumas
(1.5)
21.3
19.8
$ 5.97
41. Riverside
7.9
8.2
16.1
9.54
42. Amador
(3.1)
18.2
15.2
5.85
43. Glenn
(1.7)
16.8
15.1
6.48
44. Marin
2.0
12.2
14.2
10.71
45. Lake
(3.4)
17.3
13.9
6.72
46. San Benito
(2.0)
15.7
13.7
6.48
47. San Mateo
1.3
12.4
13.7
9.84
48.
El Dorado
(1.2)
13.1
11.9
8.30
49. Colusa
(1.3)
11.7
10.4
6.64
F. Lowest - Under 10 Cents
50.
Santa Barbara
3.1
4.9
8.0
9.59
51. Monterey
2.7
5.2
7.9
8.87
52.
Orange
(0.4)
7.8
7.4
9.39
53. Alpine
1.1
6.1
7.2
4.70
54.
Ventura
(0.9)
7.1
6.2
9.13
55. Sierra
(2.5)
8.6
6.1
6.08
56. Mono
(0.1)
4.9
4.8
5.23
57.
Mariposa
(4.7)
8.7
4.0
5.23
58. Sutter
(1.8)
1.5
(.3)
6.98
7120
COMPARE 5-27-871
JJ-EM-GRS
WITH TAX
E56-
DAY LD
WAS-FB/
SACRAMENTO (UPI) --HERE IS A COMPARISON OF THE TAX PLAN DETAILED
WEDNESDAY BY SEN. GEORGE MOSCONE, D-SAN FRANCISCO, AND THE ONE
PROPOSED BY GOV. RONALD REAGAN:
REVENUE-HTHE MOSCONE PLAN RAISES ABOUT 1 BILLION IN NEW REVENUE
FOR 1971-72. THE REAGAN PROPOSAL RAISES ABOUT $720 MILLION.
COST--THE MOSCONE PLAN SPENDS ABOUT 3997 MILLION IN 1971-72.
THE REAGAN PLAN SPENDS ABOUT $720 MILLION.
BUDGET--THE MOSCONE PLAN INCLUDES 300 MILLION TO BALANCE THE
PROPOSED 1971-72 STATE BUDGET DUT THE REAGAN PLAN DOES NOT INCLUDE
BUDGET DALANCING FUNDS.
WITHHOLD--BOTH PLANS PROVIDE FOR THE WITHHOLDING SYSTEM OF INCOME
TAX COLLECTION BUT THE MOSCONE VERSION SPENDS THE ENTIRE 2500 MILLION
COLLECTED WHILE THE GOVERNOR'S PLAN "FORGIVES" ABOUT $245 MILLION AND
SPENDS 245 MILLION ON HIGHER EDUCATION CONSTRUCTION PROJECTS, BEACH
ACQUISITION AND SCHOOL EARTHQUAKE SAFETY IMPROVENENTS.
PROPERTY--MOSCONE'S PLAN PROVIDES 9547 MILLION IN PROPERTY TAX
RELIEF FOR 1971-72, ANOTHER $799 MILLION IN 1972-73 AND 8337 MILLION IN
973-74 INCLUDING INCREASING THE HOMEOWMERS TAX EXEMPTION FROM 750
TO $1,500. THE GOVERNOR'S GIVES PROPERTY TAX RELIEF ON A SLIDING
SCALE WITH A HIGHER PERCENTAGE OF RELIEF GOING, TO THE SEMPENSIVE
HOMES. IT ALSO EXTENDS THE 1,500 PLAT EXEMPTION TO DUPLEXES,
COOPERATIVES AND SIMILAR HOUSING.
SALES--THE MOSCONE PROGRAM KAS NO SALES TAX INCREASE BUT THE
GOVERNOR'S PLAN RAISES THE FIVE-CENT-ON-THE-BOLLAR SALES TAX BY
5
SAFOR A TOTAL OF 5205 MILLION IN 1971-72.
THE GOVERNOR'S PROGRAM INCLUDES LIMITS ON COUNTY AND SCHOOL
DISTRICT SPENDING, WITH COST-OP-LIVING ADJUS MTS AND OVERRIDE
ELECTIONS NEEDED TO INCREASE SPENDING. THE PROVISION IS DESIGNED TO
CURTAIL LOCAL TAX INCREASES. THE MOSCONE PLAN DOES NOT INCLUDE THAT
PROVISION BUT HAS AN "INFLATION FACTOR" TO INCREASE SCHOOL AID.
INCOME--BOTH PLANS IMPOSE A "NINIMUM INCOME TAX" DESIGNED TO
INSURE THAT THE WEALTHY PAY TAXES ON "PREFERENTIAL INCOME" FROM SOURCES
SUCH AS OIL. THE MOSCONE PLAN ADDS THREE NEW UPPER INCOME BRACKETS
WHILE THE GOVERNOR'S ADDS TWO.
OIL-THE IOSCONE PROGRAM REDUCES THE PRESENT 27 1/2 PER CENT OIL
DEPLETION ALLOWANCE TO JUST THE COST OF DEVELOPMENT OF A WELL. THE
REAGAN PLAN REDUCES IT TO 22 PER CENT, THE SAME AS ALLOWED BY THE
FEDERAL GOVERNMENT.
RENT--THE IOSCONE PACKAGE PROVIDES AN INCOME TAX CREDIT 02 REBATE
OF 975 AS RENTERS RELIEF. THE GOVERNOR'S PROGRAM GIVES RENTERS A T50
PERSONAL INCOME TAX CREDIT.
WELFARE--THE MOSCONE PLAN REQUIRES THE STATE TO ASSUME THE COUNTY
WELFARE COSTS AND IMPOSES A STATEMIDE PROPERTY TAX TO FUND THE TAKEOVER.
THE GOVERNOR PROPOSED STATE PAYMENT OF 60 PER CENT OF
COUNTY WILFARE COSTS ADOVE THE FIRST 25 CENTS ON EACH DOLLAR.
BUILD--APOUT 9150 ILLION IS ALLOCATED IN THE MOSCONE PLAN FOR
CONSTRUCTION PROGRAMS. REAGAN'S BILL SETS ASIDE 135 MILLION FROM THE
MITHHOLDING "UINDRALL" FOR NIGHER EDUCATION CONSTRUCTION AND 360
MILLION FOR SCHOOL BARTHOUNKS SAFETY IMPROVEMENTS.
IOR--THE OSCONE BILL INCREASES THE REIMBURSEMENT TO SENIOR
CITIZENS FOR THE PROPERTY TAXES THEY PAY. GOVERNOR'S PLAN
PROVIDES REIMBURS FOR PERSONS $2 YEARS OLD WITH AN INCOME OF UP
TO $5,000. THE PRESENT REIMBURSEMENT LEVEL IS AGE 65 WITH A $3,500
INCO
COURTS--REAGAN'S PLAN PROVIDES STATE TAKEOVER OF THE COST OF
OPERATING THE SUPERIOR COURTS. THE MOSCONE PLAN DOES NOT HAVE THAT
PROVISION.
INVENTORY--THE BUSINESS INVENTORY TAX EXEMPTION WOULD STAY AT 30
PER CENT UNDER MOSCONE'S PLAN. REAGAN WOULD KEEP IT AT 30 PER CENT
IN 1971-72 AND INCREASE THE EXEMPTION TO 50 PER CENT THEREAFTER.
BANK--THE MOSCONE PLAN INCREASES THE BANK
AND CORPORATION TAX FROM 7 PER CENT TO 3.5 PER CENT EFFECTIVE IN
JANUARY. REAGAN'S PROPOSAL RAISES THE BANK AND CORPORATION TAX TO
7.5 PER CENT THIS YEAR AND TO 3 PER CENT IN 1974.
CAPITAL--CAPITAL GAINS WOULD BE TAXED AS ORDINARY INCOME, WITH THE
EXCEPTION OF ONNER-OCCUPIED HOMES, BEGINNING IN JANUARY UNDER
MOSCONE'S PLAN. THE GOVERNOR WOULD GRADUATE THE CAPITAL GAINS
TAXATION DEPENDING ON THE LENGTH OF TIME THE INVESTMENT WAS HELD.
State of California
Memorandum
To
:
Ed Meese
Date : July 16, 1971
Jim Jenkins
Cabinet
Senior Staff
Ken Hall
Subject: Gonsalves-Moretti
Tax Reform Scheme
Jim Dwight
From : Jerry Martin
We now have a brief analysis in narrative form pointing out the
shortcomings of the Gonsalves-Moretti tax reform scheme, as of
the third version (July 6, 1971).
If anyone needs a copy, please let us know.
The analysis is being made available by party channels to Republican
publications and news media editorial outlets. It is a composite
analysis that includes the summary prepared by the Assembly GOP
Minority experts.
We also have a copy of the complete Assembly Republican Caucus
analysis of the Gonsalves-Moretti tax plan. If you need it, we can
provide a copy of this, too.
July 15, 1971
Gonsalves-Moretti Tax Package
In an editorial March 28, 1971, the Los Angeles Times described the
Gonsalves-Moretti tax "relief" program as a "real mind blower."
Although it has been amended since its introduction and does contain some
elements of realistic tax reform, the overall package is totally unacceptable
because in its present form it represents a guaranteed tax increase for the
people of California. It creates inequities in a program designed to reform
the tax structure.
Examples:
Illegal Subsidy to Non-Taxpaying Renters
This is supposed to be a homeowner tax relief program. As it is now
written, the program favors
renters.
Furthermore, it provides a $35 tax credit or rebate to all renters, whether
they owe any income or property taxes. This rebate may well be an unconsti-
tutional gift of public funds because it would provide a "tax relief refund"
to renters who don't pay any taxes. Under this program, a married renter with
an adjusted gross income of $10,000 not only would pay no state income tax,
he would also receive a $35 rebate. Thus, taxes would be raised on many
Californians to provide "tax relief" to non-taxpayers.
Senior Citizen Property Tax Relief
While everyone agrees senior citizen property tax relief should be
increased, this program does this in a way that would give unreasonable tax
benefits to owners of more expensive homes. It is possible under this program
for a senior citizen over 60 to own a $60,000 home and pay no property taxes.
Yet working taxpayers living in less expensive dwellings would pay more
through higher income taxes.
-2-
Unbalanced Program
The Gonsalves-Moretti tax package is billed as property tax relief. Yet
as it is written, the program actually is simply a means of providing enough
money to balance the inflated budget approved by the Assembly Ways and Means
Committee. The program raises $1.76 billion in various taxes and increased
rates. In the third version of the Gonsalves-Moretti tax package, $454
million is earmarked to make up the deficit in the Assembly Ways and Means
Committee budget.
In effect, this is a tax increase disguised as "tax reform.' Governor
Reagan recognized the built-in tax increase in the Ways and Means budget
when he vetoed $503 million of the spending it authorized.
Inequitable Tax Reform
Democratic spokesmen have repeatedly implied that most of the revenue
in the Gonsalves-Moretti tax plan would come from the "oil industry or
insurance companies."
The fact is that middle income and upper middle income homeowners would
pay for the overwhelming majority of tax "relief" in this program, through
higher income and other taxes.
In the original version, only about $25 million or 1.8% of the revenue
would come from changes in the oil depletion allowance and about $69 million
or 4.9% would come from increased insurance premium taxes. That totals 6.7%.
In the revised version, less than 10 per cent of the revenue required to
finance the Gonsalves-Moretti tax scheme would come from business taxes. The
revised version would raise approximately $19 million by reducing the oil
depletion allowance. Even that is a questionable figure because new oil well
drilling has been declining sharply in recent years and this could cause the
-3-.
oil industry to simply invest in new drilling elsewhere rather than pay the
higher taxes. That means a loss of jobs in the oil industry at a time of
high unemployment.
Governor Reagan's program calls for reducing the oil depletion allowance
to from 27 to 22 percent, in conformity with the federal reduction. This
would keep California competitive with other states in oil exploration, which
provides revenue and jobs.
Governor Reagan's program also would return approximately half of the
$500 million first year "withholding windfall" to the taxpayers in the form
of a tax rebate.
The revised version of the Gonsalves-Moretti tax plan calls for income
tax collections to INCREASE by $1.205 billion in the first year (1971-72).
That is a 90 per cent increase in total income taxes over the estimated
$1.335 billion collected in the 1970-71 fiscal year under present personal
income tax rates.
A billion dollar plus increase in personal income tax collections is too
big a bite in one year for a balanced tax reform program and demonstrates
how hard the Gonsalves-Moretti program would hit the middle and moderate
income taxpayers.
Increased Spending For Schools
The Gonsalves-Moretti program compounds the inequities that are built
into California's present school aid distribution formula, in which rich
districts fare well and poor districts receive less than they need. The
revised program provides some $250 million in new money for schools, according
to categorical aid formulas which everyone concedes are outmoded and inequitabl
-4-
Further, simply providing more money for schools does not guarantee
that schools will use this increased aid effectively. (Under Governor
Reagan's administration, schools received $533 million of increased state
aid between 1967 and 1971).
No Expenditure Controls
Possibly the most objectionable feature is the fact that the Gonsalves-
Moretti program hides a tax increase in a tax reform bill. There is no
guarantee that the homeowner property tax relief will be permanent because
there are no expenditure controls to assure lasting property tax relief. It
took only 18 months for the $750 homeowner exemption approved in 1968 to be
eaten up by increased property tax rates and assessments. Governor Reagan's
program includes expenditure controls to protect the homeowner's property
tax relief.
Built-In Tax Increase
The Gonsalves-Moretti program provides flat rate homeowner exemptions
that increase by $100 each year. No state revenue sources grow fast enough
to offset this kind of relief, so the result would be a built-in tax increase
every three years. That defeats the very purpose of "tax reform."
Minimum Income Tax
The Gonsalves-Moretti tax program includes a provision for a minimum
income tax.
Governor Reagan has tried to include such a provision in his tax reforms
for two years so that every taxpayer would pay at least a minimum state
income tax.
-5--
Democratic opposition stalled enactment of this minimum income tax in
a comprehensive tax reform plan in 1970. It is Democratic opposition this
year that has prevented bipartisan agreement on the realistic tax reform
plan Governor Reagan is sponsoring, a plan that includes a minimum income tax.
BOB MORETTI
Tax Reform
SPEAKER
CALIFORNIA ASSEMBLY
PRESS CONFERENCE
(Unofficial and Unedited)
3
October 5, 1971
Press
SPEAKER: I thought that you might be interested in some
elaboration of where we are with regard to tax reform.
Let me try to clearly point out if I can, what the
differences are and why at least at this point the negotiations
are not continuing. There is in this year's budget a $330 million
deficit. That deficit can be picked up without any general tax
increases to the people of this state. We can easily pick it up by
closing some of the loopholes that exist in the tax law in California
today. For example, if we were to treat capital gains as ordinary
income, we would realize $225 million. If we were to cut off the
oil depletion allowance, we would realize $25 million. If we were
to adopt the minimum income tax schedule that Senator Moscone has
proposed, we would realize $73 million.
The implementation of withholding nets $210 million. So
you can take all or part of any or each of those taxes and realize
the fulfillment of the budget needs. When we talk about tax
reform, we talk about trying to adapt our system to the needs
of growth and to put it on as equitable a basis as we possibly
can. Tax reform need not mean a tax increase. They can be.
and they are two separate issues. What the Democrats strived
to do in the negotiations was to present a plan and achieve a
plan that would not result in a tax increase for the average
Californian. The plan that we presented last week would have
- 1 -
cut the taxes or broken even for 92 percent of all married home
owners with two children, which is a standard family we operate
with. It would have cut taxes for 96 percent of single renters
and 98 percent of married renters. That's what we mean when we say
tax reform. We can pick up from other than the average citizen,
from other than the individual income tax those items necessary
to develop a system which will meet the growth problem. Our
emphasis was on the income tax because we believe the only way
we can realize that growth is to put it on a tax that is
progressive, that will grow with the needs that we come into
every year. The basic difference was what reliance should be
placed on income tax and what reliance should be placed on flat
taxes that are, at least in our minds, regressive to one degree
or another.
Apparently Senator Harmer said something yesterday
about the Democrats acting in bad faith. That statement is
absolutely and totally inaccurate, incorrect and false. We went
down to the Governor's Office because we wanted to accomplish tax
reform. We knew that the Governor's agreement was tremendously
important. In order to realize tax reform, we got both houses,
both parties and the Administration together to attempt to realize
that end. I think that all the other Republicans who were involved
in those negotiations can tell you that they individually and
collectively reject what Senator Harmer mentioned yesterday. I
think that's all I want to open with.
PRESS: Bob, your first statement was to explain why at
least at this point negotiations are not continuing. I wonder
- 2 -
whether you're indicating that negotiations will continue some
time in the future.
SPEAKER: Larry, at any time that the Republican
legislators or the Administration or both are willing to sit
down again and be reasonable with regard to their demands, we will
be happy to sit down and meet with them and try to reach an agreement.
I don't want to give up on this issue as I didn't want to give up
on the other major issues of this session and I think that if
there really is a spirit of compromise and a desire to negotiate,
we can reach some settlement. Tom.
PRESS: Bob, can you explain one thing that seems to
be a gap between your accounting and some of the Republicans.
The Republican position after the meeting broke up yesterday
seemed to be that general agreement was being reached on these
issues that you discussed but that the thing really broke down
over expenditure controls to be placed on local government.
SPEAKER: Let me outline the sequence of events.
The Governor supplied us with his suggestion as to how we could wrap
it all up and put it together. All right. We went over the list. There
were eighteen items on that list and we were in agreement on twelve item
and in disagreement over six items. And, as we began to discuss those
items, one of the Republican members of the negotiating team said
it was his understanding that we had been talking about having expend-
iture controls in the bill for cities, counties, and schools.
I said at that point, that I am generally not against expenditure contro
but I want to know what you are talking about. Are you talking about
what was in the Bagley bill which was the administrations' bill last yea
No, we are not talking about that, that's not strong enough. They
- 3 -
went back to the original version of the Bagley bill. And I
said, well look, why don't you do this. Why don't you supply us
with the language that you are talking about with regard to
expenditure control. Because, I said, how can I respond unless
I know specifically what you are talking about. And then we
started to discuss the six items with which we had some disagree-
ment on the Governor's list. At that point he stood up, gathered
his papers and said I've got to catch a plane. He said, that's
our offer, if you don't accept there's not going to be any tax
reform. And he walked out of the room. Well, you know, we were
not going to accept what had been offered; so apparently that
ended it and I walked out and met with you fellows and told you
that I thought it was all over.
PRESS: Are you waiting for them to telephone you, or
are you going to initiate a telephone call to them to resume
talks?
SPEAKER: I'm not one to stand on ceremony. I met Ed
Meese in the basement when I was coming in this morning. And I
said if you do certain things we've got some place to go. And
he said, well o.k. we are going to work up a few ideas. We'll
show you our language and we will be back to you as soon as we
can. I think that the formal negotiations are not going to
continue at this point. If we can informally reach a meeting
of the minds I think that it is still possible.
PRESS: Do you think you could do it before the
Governor leaves for the far East on Friday?
SPEAKER: I'm willing, as I have been all along, to
spend whatever time is necessary. I don't know that it is
possible but I'm sure willing to give it a try.
PRESS: Are you trying to do it this week?
-4-
SPEAKER: I would try to do it today if I could get through
it. There's nothing going to stop any progress that might come about.
PRESS: How soon do you expect to meet back with him again,
or is his initiative the next one that has to take place?
SPEAKER: No. We've both talked about some things we were
interested in and he (Meese) said that he would get the information
together and would get back to me as soon as he could.
PRESS: How long do you think that is going to take?
SPEAKER: Well, I suspect some time this afternoon or tomorrow
morning.
PRESS:
SPEAKER: Yes. There is a slight difference though. For
example, as I said, if we treat capital gains as normal income, we
would raise $225 million. In our original package we had $155 million
in reduction to the capital gains and the Governor had $25 million.
The Governor is now at 50 and we are now at 110. Somewhere in between
the two I think is a figure that we could all agree to. The adminis-
tration's position is that the $50 is it and we are not going to go
any farther.
On the minimum income tax, originally the Republicans came
in with $2 million and we came in with $73 million. They are now
talking about $22 million and I think that between $22 and $25 million
would be an acceptable figure. On oil depletion, originally they talked
about five times which would have been about 9 per cent depletion versus
the current twenty-seven per cent. They came back and said no, we
didn't really mean five times, we meant fifteen per cent because that
is what we thought five times was.
- 5 -
Those are the kinds of differences that are just not being resolved.
Now we originally had gone forward with the program that included
no sales tax whatsoever. The Republicans insisted there be a sales
tax element in the program. We injected the sales tax into the
program. But every time we made a compromise they said, well that's
a good place to start. And we made another compromise and they
said well that's a good place to start. Well, after a while we
just got to the point, I think, neither side was really willing to
give on the final issues.
PRESS: What kind of tax reform or changes are possible
if you don't meet to negotiate anymore?
SPEAKER: There have been cases in the history of
California where the Legislature has been able to do something on
its own, and I'm not sure it's beyond possibility at this point.
Maybe the Governor is not going to totally agree with us, but maybe
the Republican Legislators might be more willing to go ahead with it.
PRESS: Are you putting together amendments to the
Gonsalves bill, for example, now that you will move with?
SPEAKER: Yes we are. And they will reflect many of the
compromises that have been made.
PRESS: When do you expect to move?
SPEAKER: I would say about the beginning of the week.
Pardon me?
well, there will be the amendments that I talked about
that we made some progress on during the negotiations. The sales
tax I suspect will be included and we will come down on the capital
gains deduction and come down on the minimum income tax schedules.
-6-
SPEAKER: I will negotiate with any Republicans who
are willing to negotiate whether it be the Governor or
the Legislative leadership.
PRESS: Is there any plan that way?
SPEAKER: There are no formal negotiations scheduled
now.
PRESS: Someone said you overreacted when the
Governor got up and left the meeting yesterday. Is there any possibili
that what happened is a misinterpretation of some sort that you
could clear up with a couple of phone calls back and forth and
get back into negotiations?
SPEAKER: Well, anything is possible but prior to the
time that the Governor walked out, Senator Deukmejian I think
probably hit it on the head when he said, "look we have been here
for 16 days. We have been working mornings and evenings and we
are just not really putting it together.
We are still too far apart on those five or six items" and he said,
"I think we are just fooling ourselves if we think we are
going to reach final agreement." Well that was basically the
way I felt and I echoed what Senator Deukmejian said. I just
felt that we were all fatigued and unhappy and it certainly wasn't
the best atmosphere to continue negotiations. People were getting
uptight and slamming their fists on the desks and giving speeches
and I just felt that we really weren't in a position to make any more
progress at all.
PRESS: What happened during the welfare negotiations
how did you manage to complete those?
- 7 -
SPEAKER: Yes. There were 8 or 9 or 10 times when I
thought the welfare negotiations had broken down. Well, we are
up to about 12 on this issue and at some point you know diminishing
returns sets in. We are in real disagreement over the impact of
a program on business and the income tax and I don't know that those
are going to be resolvable. We are 36th out of 38 states that impose
an income tax on our reliance on the income tax for state support.
If you want revenues that will grow with the needs and a more
progressive tax system you must tax on the basis of one's ability
to pay. To do so means using the income tax more than we presently
use it in California, and I think anything else is shortsighted, short-
range answer. If we want to come back to the people every two or
three years with a new tax increase then we go the way the Republicans
suggest. If we want some kind of long term answer we are going to
have to shift dependance from the property tax to the income tax.
PRESS: Is the atmosphere you speak of going to be
better next week when the Governor is not here?
SPEAKER: I really don't know. Let me tell you one
thing so there is no misunderstanding whatsoever. I do not
believe the Governor acted in bad faith. The Governor has not
broken his word to me. He has been tough but he has been straight
as we found out during the welfare negotiations. You know he did
what he said he would do as we did, and under no circumstances am I
saying the Governor is at fault for these negotiations breaking
down. I think both sides made a good effort and a strong effort
but we just got to the point where we really couldn't agree.
- 8 -
PRESS: How is capital gains income taxed now?
SPEAKER: 50% of the gains are exempted from taxation.
You pay taxes on the remaining 50%. That is what the California
law is now.
PRESS: You want to cut it to 25 is that right?
SPEAKER: That's right. We want to cut the exemption
to 25%. There are a great many arguments that capital gains should
be treated as ordinary income and you should pay full tax on the
entire amount of the gains.
PRESS: That's 25% exempt not 25% paid on?
SPEAKER: I said there are arguments that you should
pay ordinary income tax on the full amount of capital gains. That's
one extreme. The other is that you don't change it at all from
what it is now. A person does not invest on capital gains basis
because of the State law. It is the federal law where the real
exemption helps and California is not the first state to move in
this direction. There are 10 states in this country that treat
capital gains as ordinary income. Two major states, Illinois and
Massachusetts, so we are not moving in a direction that is wild or
new or radical. We just think that this is a tax that can and
should be imposed. It does not result in a tax increase for the
people of the state across the board but only those who are in a
position to realize capital gains.
PRESS: You said you want to cut it in half. Is that
where you stand now?
SPEAKER: Yes.
PRESS: 25%. o.k.
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PRESS: Bob, when do you expect to bring the Gonsalves
bill up on the Assembly floor, and with the compromises you have
talked about, how many Republican votes do you think you can
attract?
SPEAKER: I'll answer two ways. I think at the
beginning of the week we will bring up the Gonsalves proposal.
How many Republicans I can get at this point I just can't tell
you. We haven't worked the floor on it. We had hoped that
negotiations would result in some agreement and we wouldn't have
to face that one, but we haven't really taken any kind of count
at this point.
PRESS: The fact that the Governor will be gone two
weeks
?
SPEAKER: I don't know. I suspect they will be in daily
communication with him and he is going to know what's been proposed
and whether or not it is acceptable to him and they can talk to
him from wherever he is going to be.
PRESS: As you negotiated, did it appear that the Governor
and his Republican legislators were together on most of the points?
SPEAKER: Well, I understand they had their very strong
differences too. Although the Republicans that were sitting at
that table do not come from the same philosophical position within
the Republican party. So what they did was meet each day before we
met with them. And they would try to hammer out some kind of
agreements so that when they came in the room they were basically
together on the issues.
10 I I
PRESS: HOW about the Democrats, are you all of similar
faiths?
SPEAKER: Yes, we did the same thing. We got together.
and figured out what our position would be and presented those
positions in the negotiations.
PRESS: Getting back to this poor atmosphere for negotia-
tions, does it just need a cooling off period?
SPEAKER: That's possible. And it's possible that it
may need nothing more than that. But you understand there are
some deep philosophical differences on which taxes should be imposed.
We believe the emphasis has to be on the income tax. Republicans want
to rely very heavily on the sales tax. They are not willing to cut as
deeply into the loopholes as we are. It doesn't matter whether you're
talking about minimum tax, or capital gains, or oil - in no instance
are they as willing to cut into those loopholes as we are. Those
are philosophical differences that may not be resolvable. So, I
don't know whether or not the cooling off period's going to help,
because I don't think it's going to change anyone's philosophy.
PRESS: A lot of you have said that you'd resume the talks
if the right circumstances arise. At this point, what odds would
you give on a resumption of those talks?
SPEAKER: Well, I don't know. We don't have off-track
betting, the odds aren't set, but I'd guess one in five, or something
like that.
PRESS: Pretty slim, huh?
SPEAKER: The Saint Paul book says one in five
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