California Gives Itself an Interest-Free Loan on the Backs of Its Taxpayers

Posted on November 1, 2009

From the L.A. Times:

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.

In effect, California is giving itself an interest-free loan with promise to repay next April as people file their income taxes for 2009.  If someone was expecting refund, it will be larger, and if you owe, your bill will be smaller. 

A spokesperson for the state’s Franchise Tax Board did say people could avoid the extra witholding by changing their tax forms, but “California’s budget leaders are banking on the hope that most won’t.”

So while unemployment is in the double-digts and many are forced to try and “make do” with much less, California is doing what the individual can’t.  It is reaching into the pockets of its residents to find money to support itself.   Although the total amount per earner is not a large, there doesn’t seem to be anything to keep the government from witholding even more if it choses to.  How about 15% or 20% more?  Why not just double the witholding and give most people refunds when tax time rolls around next year?  This is the problem when lawmakers have too much control in setting tax rates without the people’s input.  Compounded with those same lawmakers not being able to make cuts in the state’s budget to meet the $1.7 billion deficit.

The kicker is that this doesn’t look to be a one-time thing:

California will probably continue to collect the tax at a higher rate for many years — or find an additional $1.7 billion to slice from a future budget, an unlikely occurrence. All workers who have state taxes withheld will see their paychecks shrink.

After collecting the extra witholding for years, I can easily foresee this becoming a permanent thing.  The arguement that people have already grown accustom to the extra witholding, and it not causing undue harm, the effort will be to make it permanent.   And if the residents don’t speak up, there will be no reason for the government to do otherwise.

Posted in: Economy