Gov. Arnold Schwarzenegger told business leaders Thursday he supports a proposal by nonpartisan Legislative Analyst Elizabeth Hill to rescind $2.7 billion in tax credits, but he later softened that stance and said he doesn't necessarily support all of her recommendations.

Hill last week found a dozen tax breaks that could be reduced or removed to help bridge an $8 billion budget gap remaining for the next fiscal year. The largest would be a $1.3 billion rollback of credits for those who claim child dependents, going from $294 per dependent down to $94.

"She has identified $2.5 billion of tax loopholes, including the yacht tax," Schwarzenegger said at a Los Angeles economic town hall, using a long-term annual estimate of Hill's proposals. "I think that we should go after those tax loopholes because we would need the extra $2.5 billion. This is $2.5 billion we can give straight to education. I'm totally for that … and I agree that we should go for it, and we should do it because everybody has to give something in order to make this work."

But speaking to reporters afterward, Schwarzenegger said, according to a transcript provided by the administration, "I'm not for the recommendations she made, necessarily."

He said he believes the state should "look at all the ideas that are available and where we can, you know, close some of those tax loopholes," he said.

Democrats said they welcomed his apparent interest in reducing tax credits, even if he backed off of his original blanket approval of Hill's suggestions. Sen. Denise Ducheny, D-San Diego, called it "a positive sign."

Republicans said Hill's recommendations were nothing short of tax increases.
"We put these in the tax code to encourage people to locate in California and do business here," said Senate Republican leader Dick Ackerman of Irvine. "Undoing the dependent credit would raise taxes on families. I don't consider that a loophole."

Schwarzenegger noted that his interest in rolling back tax credits strayed from GOP orthodoxy.

"Now may I remind you, you see here even though I'm a Republican, I'm a big believer when we have a financial crisis like this, we should all chip in," he said. "And this is why I totally agree with the Legislative Analyst's Office when she says that we should look at tax loopholes. We should look at those seriously." 

by Kevin Yamamura, Sacramento Bee, February 29, 2008