Well, the wait is finally over. The Democrats announced all those zany tax increases they’d been keeping secret for the past six months. Alittle more than $8 billion worth.
Both Assembly Speaker Karen Bass and Gov. Arnold Schwarzenegger say California needs to overhaul its archaic tax system, created during the Great Depression and riddled with so many inequities, loopholes and exceptions it makes Swiss Cheese look solid.
They’re right. The tax system needs an extreme makeover. Except that’s not what they did. They just punted. Blew it off until some later date. Not exactly a chapter in Profiles In Courage.
A cursory look at Appendix B of the Franchise Tax Board’s 2006 Annual Report – the latest available on their website — shows that 83 percent of the taxes paid in 2005 came from persons with adjusted gross income of $100,000 or more. In 2002, for instance, those same taxpayers forked over 46 percent of taxes collected.
One might argue that the state is dangerously reliant on its higher income citizens. If the Dot Com bubble bursts and those swells don’t cash out their capital gains, tax revenues plummet. It’s happened before.
Over 1 million Californians with adjusted gross income of $100,000 to $149,999 filed returns in 2005 and paid nearly $5 billion in taxes.
The 75,384 persons who had adjustable gross income of between $500,000 and $999,999 paid $4 billion.
The 27,271 at between $1 million and a dollar less than $2 million kicked in nearly $3.2 billion.
And the 5,895 taxpayers at $5 million or more paid $9.1 billion – more than 20 percent of the $43.1 billion collected that year.
So knowing that more than 20 percent of your taxes come from less than 6,000 persons wouldn’t the first move to solve this year’s budget gap be to increase the state’s reliance on that fraction of the population?
Of course it would. And that’s exactly what the Democrats did.
Taxpayers filing joint returns with taxable income of over $321,00 would pay 10 percent instead of 9.3 percent. Those with incomes over $642,000 would pay 11 percent.
This is estimated to raise $5.6 billion. It won’t.
Of course if you’re a millionaire you are already paying 11 percent to support mental health programs, much of the revenue gathering dust in county coffers because it can’t be used to support existing programs, it can only be spent to create new ones. Bummer about the existing programs being cut.
Presumably those millionaires would go to 12 percent although the Democratic proposal is silent on this.
A number of these big money filers are actually Subchapter S corporations and sole proprietorships who run their earnings through personal income taxes instead of the bank and corporations tax.
Senate President Pro tem Don Perata said at a press conference the other day the rationale was that the people who benefited from the state’s economic growth should pay more.
Speaker Bass noted that state taxes are deductible on federal taxes.
With respect: Whoopty do.
The good news is there are two things on the Democrat’s wish list that Republicans will eventually go for after much gnashing of teeth and rending of garments.
One is to offer tax amnesty, which is supposed to yield new revenue of $1.5 billion. Republicans have routinely supported tax amnesty in the past.
Were John Burton, die-hard San Francisco liberal, penning this screed he would say amnesty allows the Captains of Industry to pocket more of the profits they earned off the sweat of the hard-working men and women of the Great State of California.
And so on.
Also, Republicans will eventually agree to suspending for a year or two the “net operating loss” write-offs corporations get to take. They voted for it in the early part of this decade and the early part of the last decade so it’s not like they’re virgins on the issue.
So after all the hooting and hollering the Republicans will probably agree to about $3 billion in new revenue that they don’t have to call tax increase thus maintaining the purity of their precious bodily essences.
Adding indignity to the higher tax brackets, the Democrats propose not adjusting the income tax brackets for inflation, presumably for one year. They say a taxpayer with income of $50,000 would pay $34 more and one earning $97,00 or more would pay $180 more.
There’s goes the ol’ economic stimulus check.
And in case the “rich” Californians who have profited so handsomely off the state’s economic growth and earn $150,000 or more happen to have any kids, the tax credit for each chiild would drop from $294 to $94.
What are they going to do with the $94? Buy a third of an iPod?
Stand up on your hind legs and take the full $294. Show some backbone.
While the Democrats want the wealthiest Californians to kick down another $5.6 billion they are raising the top tax bracket for businesses from 8.84 percent to 9.3 percent to generate $470 million.
Ouch. Was that a paper cut?
How about the multinationals paying $5.6 billion and the taxpayers $470 million?
Better yet: Instead of all this timid horsing around, lower the sales tax by a penny or two and expand it to cover the stuff that powers this state’s economy, like software and services.
Broadening the base is smart and forward thinking. It doesn’t make more of the state’s revenue stream dependant on the economic whim of less than 6,000 rich people.
There are plenty of activities the sales tax can – and should – be applied to. Here are some examples.
Whip up a little side plate of chicken salad.
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