California has come up with a novel way to close this year's budget gaps: it's increasing withholding from the paychecks of its citizens. No, the government didn't actually increase taxes; it just raised the withholding. They'll give any extra funds back to taxpayers in April, and presumably fewer people will have to write checks to the government on April 15th.
This is a terrible idea on many levels. First of all, the government should not be taking forcible loans from its citizens. Second of all, the fix is extraordinarily short term--people can start filing for refunds in four months. What are they going to do for an encore? Maybe, instead of raising taxes, governments can just start ritually raising the withholding regime every year, then mailing a check back at the end of the year, only to withhold even more the next time . . .
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somebody once said "People tend to get the governments they deserve"
cynical, but probably appropriate in this instance
Third of all, is CA going to repay the refunds in the form of IOUs?
My thoughts exactly
Didn't they do a bit of that last time? What's to stop them from doing it again? And again? And keep doing it until enough political careers get ended at the ballot box.
Precisely. That's what they did this year.
At what point do we officially stop being a democracy? Who, precisely, voted in a government that confiscates private property "for the good of the people?"
These are the actions of Banana Republics, not a free people.
California is in the shape it's in because of just this kind of budgetary fraud. Every year they roll out a panoply of accounting tricks, like delaying payment on December's bills until January 1st. It's like a wave of accumulated debt washing into future budgets.
If my memory serves me right, didn't Obama do something similar with the federal tax withholding?
No. They cut the income tax rate and the withholding.
Eventually (soon, from the looks of things) California is going to have to face up to the damage caused by Prop 13 and either lower the number of legislators required to raise taxes, or raise the number of legislators required to raise spending.
Remember: California leads the Nation.
Because in CA they really know how to "squeeze blood from a stone". CA leads the nation in declining economic output and producer flight!
Every body needs to STFU about prop 13. It's been the law for 35 years now. If polliticians can't figure out how to live within their means in 35 years then they are completely retarded and so are the "progressives" that mindlessly repeat the myth the prop 13 is at fault for all ills.
It's the insane socialists who just can't stop spending.
Let's look at a little CA budget history:
http://www.sen.ca.gov/budget/budgethistory.pdf
2000-01: 99 billion
2001-02: 103 billion
2002-03: 99 billion
2003-04: 99 billion
2004-05: 105.3 billion(?)
2005-06: 117.3 billion(???)
2006-07: 131.4 billion(!!!!) WTF?????
How can any defender of CA government explain the explosion in state spending from 04 to 07?
Eisenhower warned on the "military-industrial" complex 40 years ago---
how about the "public employee union - politician" complex today-
its the perfect symbiotic partnership: public employee unions give big campaign contributions and ground level support to politicians who in turn give raises and pension goodies to public employee unions. Lather, rinse, repeat.
Unlike unions at private firms where if management is too generous, the firm eventually suffers forcing a union contract re-negotiation or bankruptcy --- public employee unions are never subject to market discipline. Taxes and fees can simply be raised.
You should take into account inflation and population growth. Here it is in real per capita terms (using 1984 dollars CPI-U (thats what I found easiest on BLS) Note, 2009 $'s are about half the value of 1984 dollars, so double these numbers to get it roughly in terms of 2009 dollars.
Real Per Capita Spending:
1690.981593
1685.431405
1576.062332
1523.88312
1564.532763
1673.700692
1807.125301
The average is $1,645.96 over this sample period. 2006/2007 did see an increase of $150 (1984 USD) per person over that average. In other words, over the sample period, california spends about $9 per person per day. In 2006/2007, it went up to $10.
The two other years that you thought warranted exclamation points aren't terrible abnormal (one of them is actually below the sample average).
Also note that this data ends in 2006/2007, and does not include 2007/2008 or 2008/2009. I believe I read that in real per capita terms, those years actually saw declines, but I could very well be mistaken.
*note: I am assuming the values given initially in the above post were nominal, but the provided link did not explicitly state that. If someone can prove they were already inflation adjusted, then the post makes a stronger argument.
So, in short, it seems to me that for the government to run a balanced budget, each citizen of California would have to pay $10 a day in taxes or pay $3,650 a year in taxes.
This link comes up with the number $3,351.8 for 2009, so I think my estimate is pretty darn close.
http://www.usgovernmentspending.com/CA_per_capita_spending.html
In short, if you make $100,000 a year 3.6% of your income goes to the state. if you make $50,000 its more like 7%. Considering that you're supposed to give 10% to the church in some Christian denominations, this doesn't seem all that unreasonable.
Considering that you're supposed to give 10% to the church in some Christian denominations, this doesn't seem all that unreasonable.
Only if you think being compelled to give to what someone else wants has anything to do with charitable donations.
BTW, the enacted budget for 2009-2010 is:
http://www.ebudget.ca.gov/pdf/Enacted/BudgetSummary/FullBudgetSummary.pdf
$119 billion in a severe recession. They just can't help themselves.
I must apologize for my intemperate language used above.
I certainly did not mean to demean any special needs persons by comparing them to irresponsible politicians or "progressives".
Speaking as a resident (unfortunately) Prop 13 was necessary (or at least fixed a real problem). We can argue about the other stuff. Personally, I think a lot of it has to do with spending that is simply out of control as well as an initiative process that makes it too easy for the public to directly meddle in budget issues.
Dream big, wiredog. Those are two answers that the voters of California, looking at the way the state government is run, will NEVER agree to. There are lots of trees being slayed by the special interests writing lengthy studies pretending they can undo Prop 13 and make it easier to raise taxes.
Just think what you're proposing. California is a high tax state, but it's big problem is, it's too hard to raise taxes? That's not an argument that flies in a democracy--although it may suit your purposes to engage in this fantasy if you count on a flow of money from the government.
Did they simultaneously enact a law prohibiting folks from "updating" the state equivalent of their W-2 forms?
No, they didn't, which is why this is just a "stupidity tax."
WTF do you think withholding is in the first place? You're just talking about the degree.
Withholding can at least be argued as an approximation of taxes due. If the best guess is that I owe $100 of taxes on what I earned this week, then I pay $100 now. It might wind up to have actually been $95 or $105, but it's based on a good-faith attempt to get a number that's close. This is not being done in good faith.
Short Term? You lack vision, Megan. Further efforts to reduce the budget gap will involve furloughing Department of Taxation staff. This will of course lead to delays in processing returns...
Forced loans are illegal at common law. See Darnel's Case (a.k.a. The Five Knights Case), 1627.
Like most forms of tyranny, this one has been tried before.
It's succeeded here. We already let them get away with withholding.
Yes, but withholding is traditionally meant to cover only the amount of tax that will be due, and taxpayers are allowed to adjust it themselves. This new action disregards the fig leaf of future tax liability, and purposefully takes money above the amount the taxpayer can be expected to owe. Normal withholding is justifiable. This isn't.
we let them get away with it
especially since we let them not pay interest on the loan
The encore? The options on the table are the innovative IOU as noted above; or the old standby: the check that arrives very late.
Thereafter, I suggest that on renewing your car registration you might have to pay state gas tax in advance for the year - refunded of course at year end(or some long time later) if you haven't done the specified expected mileage for your car model. The pump price will not alter as the state will also be collecting a new anti-pollution surcharge - Heavens to Betsy, of course it is not a new tax! - on gasoline.
Frankly, I think in this, as in so many other areas, California is providing a valuable example for other polities to follow.
In an ideal world, all income would be directed ("withheld" if you must) straight to the government. Then, at an appropriate time, members of the public could petition for the return of funds they feel they are entitled to, within the limits of total allowable refunds as set by law.
This way we would never again run into the awful situation of the government having to go about groveling for extra money or engage in tedious debates about the "appropriate" level of taxation. The government would simply collect all money in the economy, decide how much it needed to perform all of its many vital functions and then determine how much of the remainder to return and to whom.
The whole system would be much more efficient and result in a significantly more just & rational final distribution of income. Thank goodness we have California to spearhead the first tentative steps towards the kind of bold, new thinking on government's powers of taxation that we so desperately need in this country.
Another home run by blighter - we should really have a hall of fame around here for some comments.
I have always thought the first step to really reforming the tax laws would be to stop all withholding. Make people write a check every month, every quarter or ideally just once a year for all their taxes due. That would wake up a whole lot of taxpayers and probably get a whole lot more thrown in jail for inability to pay. Piss off enough voters and we may actually get some real change and for certain the incumbent politician wouldn't like it.
Step one would be to make Tax Day October 15, not April 15.
Then everyone would be grateful for their windfall, aka refund. No, that is step two. Or whatever step it takes to get it after ending withholding.
While most of the middle class and up would just self-withhold (deducting from paycheck to a savings account) - the poor would likely forget to and be unable to make their tax bill on tax day...
It'd be nice for me to see the interest on my withholding, though...
That's a feature, not a bug. It would bring to bear that the refund check was not a gift.
Oh, I live in a state where out property tax rebates are pretty much an explicit gift...
Out of sight, out of mind.
In sight, in mind.
Amazing.
Do they have exit taxes, yet ? :)
Withholding is not a forcible loan as taxes are technically due throughout the year. The withholding is you estimating your liability and paying it and then at the end of the year you reconcile your actual tax liability with what you paid. Theoretically, your withholding should equal your tax liability.
What I do find unfair about the whole process is that if you underpay, you are possibly subject to fines and fees while if you overpay, you just get your money back.
Accountants out there, correct me if I am wrong... but as far as taxes go, don't you only have to be current on a quarterly basis? Don't employers get the benefit of the money until they have to pay it out?
Stuff like this keeps up and pretty soon you'll have to start wondering if the militarized fence on the Mexican border is to keep them out or keep Californians in.
You think the electric fence around the USSR was to keep foreigners out? lol
I was thinking that stuff like this will show us how much Americans will bear and how long they will put up with an unchangeable political and bureaucratic establishment before they resort to armed violence.
Is there anyone who would look poorly on a mob of citizens rushing a legislative session to begin tar and feathering their "representatives"?
Maybe you should tar & feather your socialist neighbor who voted in the scumbags! I never understood going after their rep.
We outnumber the reps.
What're the tickers for tar and feather futures? For the life of me can't google them up...
At some point this has to cross the threshold of unlawful seizure of assets.
What is particularly cynical about this move is that the State knows that the additional withholding can be overcome by increasing the deductions on your W-2 but because most people will neglect to do this out of ignorance or because of perceived complexity, the percentage of Californians that frustrate the State's plans will be small and the legislature is banking on it, literally in this case.
California's Tax Games
The Grasshoppers vs the Ants;
Fourth and gaol. :)
Tar and feathers ? No, for TPTB,
the Fate worse than death is to be
returned to the status of private citizen.
@ ElectronHayek: T&F for the voters !
But they outnumber the citizens, badly,
and besides, they are us; Throw the
Rascals out, and replace them with
Good Shepherds.
P.S.
Saw the first analysis of the
California Catastrophe which gave
Texas as a successful counter example:
Low taxes, small government.
Still not in favor of breaking away
as The New republic of Texas;
Securing the border would be Hell.
The _Northern_ border, wiseguys.
Obligatory disclosure - I am not a lawyer. But I cannot imagine that there isn't a legal issue involved here. When the state withholds more than is necessary to pay your estimated taxes... I mean there isn't even a pretense involved here - they come right out and say that you will get it back.
I would love to hear from the lawyers out there - is this really kosher from a legal standpoint? What if businesses refuse to withhold the taxes, etc...?
California: 10th in Taxes, 46th in Primary Education
Sounds like a great place to start a business and raise a family, eh?
Megan,
States aren't allowed to run deficits and conservative Federal Senators are doing everything in their power to prevent the Fed from loaning/giving money to the states(ie Bigger Original Stimulus, Stimulus II)
Yes withholding additional taxes is not a good idea. In fact, it undermines economic recovery. But in lieu of being allowed to run a deficit, states can effectively balance their cash flows without actually running a deficit on paper just by stretching out payments and holding on to cash for longer.
Avoiding these sorts of shenanigans was probably the strongest argument in favor of a significantly larger stimulus. This sort of state-level problem was anticipated by many competent economists. So please don't act surprised.
You want better policies? Then just stop opposing better policies.
Or they could, you know, cut spending and sell out some of their many assets which would net an estimated $32 billion:
http://www.ktvu.com/news/20159970/detail.html
Says someone actively opposing better policies.
The better policies needed now are "spend less money."
Seriously you don't have any idea what you are talking about. Give me some coherent reason why we need to spend less money. No, I'm not talking about the false analogy you draw mentally between your personal finances and government finances, I'm talking about something that would make sense to a government actor.
We're recovering from a very serious recession. Cutting government spending at the same time the private actors are cutting their spending will just just slow recovery and make things much much worse. It will decrease GDP, decrease investment, decrease employment. It is a bad idea.
Moral hazard.
You want better behavior? Stop enabling bad behavior.
Moral hazard for corporations is a hard enough case to make.
Moral hazard for states is even more tenuous. Most specifically because they are not allowed to run deficits and accounting games will only get you so much slack. So states run the risk of deficits only when there are sharp drops in revenue(ie crisis), in which case they already have backing from the federal government.
Conservatives in California think that they can force cuts by stopping any attempts at funding shortfalls; but you are fools if you think the dems are going to duck in this game of chicken. They have the majority, the advantage.
So all that conservatives are accomplishing is de facto debt, and de jure accounting craziness.
Texas produces better educational outcomes for far less taxes. So, it stand to reason that California is not providing value for money, and costs could easily be cut without any weakening of services.