Right Thinking From The Left Coast
If everything seems under control, you're not going fast enough. - Mario Andretti

I’ll Take Some Of That

Is this even legal?

Starting Sunday, cash-strapped California will dig deeper into the pocketbooks of wage earners—holding back 10% more than it already does in state income taxes just as the biggest shopping season of the year kicks into gear.

Technically, it’s not a tax increase, even though it may feel like one when your next paycheck arrives. As part of a bundle of budget patches adopted in the summer, the state is taking more money now in withholding, even though workers’ annual tax bills won’t change.

Think of it as a forced, interest-free loan: You’ll be repaid any extra withholding in April. Those who would receive a refund anyway will receive a larger one, and those who owe taxes will owe less.

....

The extra withholding may seem like a small amount siphoned from each paycheck, but it adds up to a $1.7-billion fix for California’s deficit-riddled books.

From a single taxpayer earning $51,000 a year with no dependents, the state will be grabbing an extra $17.59 each month, according to state tax officials. A married person earning $90,000 with two dependents would receive $24.87 less in monthly pay.

The principle of the thing bothers me more than the amounts. As much as I would oppose a tax increase, at least that would be legitimate—and permanent (modulo high earners leaving the state).  But the way this is being pitched is that this will now be a permanent thing.  That, like Prometheus, the taxpayers will regularly have a part of their paycheck ripped out only to have it grow back every April.

This is just a shell game.  It’s moving small piles of money around to create the illusion of fiscal solvency.  It’s the sort of thing that, if a Wall Street firm did it, would land its CEO’s in jail.  Only in California would it be called “leadership”.

Posted by Hal_10000 on 11/01/09 at 02:27 PM (Discuss this in the forums)

Comments


Posted by AlexinCT on 11/01/09 at 04:41 PM from United States

If I lived in CA and because of this could not meet my financial obligations, would I have a legal case against the state?

Posted by on 11/01/09 at 11:41 PM from United States

Despite the fact that you get the money back in April this is a tax increase.  Economically the concept this is playing to is the time value of money.  $100 now is worth more than $100 in April.  This is even the case when inflation is not taken into account because that $100 could be earning interest or invested or could buy you something now that would make your life better or easier. 

I wonder how long until the IRS latches on to this scheme.

Posted by on 11/02/09 at 05:46 AM from United States

I wonder how long until the IRS latches on to this scheme.

As California goes, so goes the nation...or so they say.

Posted by on 11/02/09 at 10:04 AM from United States

Didn’t we just se a REDUCTION in witholding by the IRS under GWB to help stimulate the economy?

Posted by HARLEY on 11/02/09 at 06:25 PM from United States

I wanted to blog on this, but i just did not the time.

You are right is is just a legal shell game, in time they will have to take more from the taxpayer to support the system.
Given the state of the finances of Calif, when April comes and the State can not afford to pay that money back, will they just do more legal trickery and send out IOU’s?

$100 now is worth more than $100 in April.  This is even the case when inflation is not taken into account because that $100 could be earning interest or invested or could buy you something now that would make your life better or easier.

Are you figuring in the slide of the dollar?
Posted by on 11/05/09 at 10:21 AM from United States

Didn’t CA hold back on refunds last year because they didn’t have enough cash to fund taxpayer’s refunds?  I think I’d march into HR and manually adjust my withholding rates for fear that my 0 interest loan to the state might get extended!

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