NCPA - National Center for Policy Analysis


November 4, 2009

Desperation grabs for revenue are nothing new in politics, but California is once again leading the way in creative financing, says the Wall Street Journal.

  • To help close yet another gaping budget deficit, now estimated to be $7 billion this year and reach as high as $20 billion next, Sacramento lawmakers have authorized a 10 percent increase in the amount of taxes withheld from worker paychecks starting November 1 and through 2010.
  • The extra withholding tax will reduce Californians' take-home pay by about $1.7 billion for the year.

But the lawmakers say this isn't a tax increase.  OK, how about calling it a compulsory interest-free loan from taxpayers to the state, asks the Journal?

  • According to the Franchise Tax Board, 10,004,000 Californians overpaid their state taxes last year and received an average refund of $903.
  • The withholding penalty is expected to snatch between $20 and $90 a month from middle-class families.

For those feeling the pinch of recession and living paycheck to paycheck, that penalty will hurt, says the Journal.  Of course, the government is obliged to return this money next spring when workers get their tax refunds, so this is the ultimate budget gimmick.  It borrows from taxpayers now and deepens the budget hole next year.  And what happens come April if the state doesn't have enough money to pay the tax refunds it owes its citizens?  Will taxpayers get IOUs the way state contractors did last year when Sacramento ran out of money?

Source: Editorial, "California Stealin'," Wall Street Journal, November 4, 2009.

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