More on California’s New Taxes

February 20, 2009

After leafing through the reams that make up the federal stimulus bill earlier this month, California’s budget bill (fiscal note here) is more of a breeze. Quick and to the point. (Yesterday we covered the bill’s passage and its tax code changes.)

One unfortunate point is the revenue projections, which don’t seem to acknowledge a recession. Every tax raises more revenue, and the amount goes up each year. (The personal income tax is a seeming exception, but that’s mainly because 1-1/2 years of revenue is collected all in 2010.) Perhaps they may prove overly optimistic.

The Sacramento Bee has an excellent online tax calculator allowing you to see how your taxes will change.

The Wall Street Journal also reminds us to keep things in perspective:

The tax increases will continue to chase even more productive people out of the state. For at least two years, the sales tax would rise by one percentage point to 8.25% and the income tax by 0.3% to a top marginal rate of 10.56%. These will both be the highest statewide rates in the nation (see chart). [The chart notes that the median state sales tax is 5.5% and the median top marginal income tax rate is 6.0%.]

Do these taxes hurt business? Ask Hollywood. Film makers are threatening to flee to avoid the state’s high costs, so to keep them in Southern California the deal offers $500 million in tax breaks for producers. Rich liberals like Rob Reiner, who love higher taxes on other people, get a sweetheart tax break and everyone else pays more.

Mr. Schwarzenegger is finally getting a constitutional state spending cap that will be on the ballot in the next election, but even that is flawed. This cap would limit spending hikes in any year to a rolling average of the percentage increase of the past 10 years. Nice idea, except that if Californians vote yes, the higher income and sales taxes automatically kick in for three more years. So to get a modicum of spending restraint, the voters have to agree to tax themselves by $25 billion more for three additional years. Californians can be forgiven if they say “no deal.”

(Note: The last-minute changes to the bill mean that the top marginal rate will now be 10.55%, unless by April 1 California receives federal stimulus aid, which they are expected to do. In that case, the top marginal rate will be 10.425%.)

More on California here.


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