As major Capitol business and labor groups denounced a tax overhaul package released Tuesday by a blue-ribbon commission, Gov. Arnold Schwarzenegger essentially embraced the plan, whose key components would flatten the state's income tax and install a new form of consumption tax on businesses.

The Republican governor said he would sign the plan if it landed on his desk in its current form, although he acknowledged that lawmakers should have the chance to analyze and "tweak" the proposal. Schwarzenegger called a special legislative session on Tuesday to deal with the package, and he said he wanted lawmakers to act on the plan by the end of the year.

"I didn't see the final report and all of the details, but from what I have heard, I would sign it immediately if this would come to my desk the way it is now," Schwarzenegger said. "I think it is really an unbelievable compromise between Democrats and Republicans."

Schwarzenegger stood at a Capitol press conference with two of his appointees, Chairman Gerald Parsky and Hoover Institution fellow John Cogan, as well as Democratic appointee and UC Berkeley Law School Dean Christopher Edley. Nine commissioners supported the plan, but only three of seven Democratic appointees did so. The one Republican appointee who did not sign on was Bill Hauck, president of the California Business Roundtable.

Democratic legislative leaders, who did not appear at the press conference, took a far more cautious approach than the governor to the package in separate statements. Lawmakers must pass any plan on a majority-vote before it can go to the governor.

"I know there have been concerns raised by the business community and concerns raised by advocates for middle class families and low income workers," said Assembly Speaker Karen Bass, D-Los Angeles. "Those concerns will be reviewed in the committee process. Californians deserve a fair and full assessment of the ways these recommendations would affect them -- whether positive, negative or neutral."

The plan's main elements suggest that the state:

-- Flatten the state's income tax by reducing the number of brackets from six to two and capping the top rate at 6.5 percent. Millionaires would still pay an additional 1 percent on income above $1 million for mental health programs.

-- Install a new form of tax on all businesses that applies to their net revenues minus purchases from other firms, dubbed the Business Net Receipts Tax. Companies would not be able to exempt wages and benefits for in-house employees, although they could exempt any payments to contractors. The rate would top out at around 4 percent, less than half of the existing corporate tax.

-- Eliminate the 5 percent state sales tax portion that goes toward the general fund.

-- Eliminate the state corporate tax.

-- Establish a new independent tax forum to resolve tax disputes.

-- Ask voters to establish a new rainy-day fund and spending cap.

The proposals came under immediate fire from labor unions and business groups who hold considerable sway in the Legislature, as well as Democratic-appointed commissioners and a group of tax law professors and think-tank analysts. Business groups say the plan could have significant unintended consequences and would damage companies that rely heavily on labor rather than materials. Labor groups say that because businesses cannot deduct employee benefits and wages, workers will bear the brunt of the new Business Net Receipts Tax.

Meanwhile, those representing low-income earners criticized the fact that the wealthiest 3 percent of earners would receive half of a $15 billion reduction in the state's personal income tax.

Parsky said that was necessary to reduce the tax system's volatility, which has contributed to the state's repeated budget problems.

The commission chairman said that low- and middle-income earners would not bear any greater burden because the money would be replaced by increased federal deductions and out-of-state firms who would now be required to pay taxes under the plan. Some, however, question the constitutionality of charging out-of-state retailers who do business in California, such as Amazon.

Parsky tried to assuage concerns Tuesday by saying the plan calls for the elements to be phased in over five years. He warned critics not to take a "knee-jerk" approach to the plan and said that when read in totality the package would vastly improve the state's tax structure.

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Call Kevin Yamamura, Bee Capitol Bureau, (916) 326-5548.