Taxable Talk

As part of one of California’s bad budget deals, sales and income tax rates were temporarily increased by 1% and 0.25%, respectively, for two years. Despite the protests of Jerry Brown and Democrats in the California legislature, those temporary tax increases did turn out to be temporary.

Tomorrow, California sales tax rates decrease by 1%. In Orange County, this means that generally sales tax will fall from 8.75% to 7.75%.

Income tax rates will also fall; California’s top bracket (excluding the millionaire tax) will fall from 9.55% to 9.3%.

It’s been a while since I’ve reported on the California budget situation, but it seem apropos given that June is right around the corner and with it the constitutional deadline for California to have a balanced budget. Democratic Governor Jerry Brown would really, really like to have four Republican votes to increase taxes; however, all he has found is “no.”

With last year’s change in the California state constitution, a budget only requires a majority vote so Democrats can pass whatever they want…except tax increases. On July 1st, the temporary hike to California’s sales tax (1%) and the income tax (0.25%) expire. Republicans have stated since Brown was elected that they would not vote for any tax increases, and they’ve kept their word.

California’s budget situation isn’t as dire as it was earlier this year. April tax revenues to the state came in $6 billion higher than projected, so the state is currently facing a budget deficit somewhere between $9 and $16 billion. What’s truly needed (massive cutting of the statue bureaucracy and regulations) won’t happen–indeed, Governor Brown signed a new contract with the prison guard’s unions that will, in the long-term, just aggravate the state’s problem–so we’re left with what will probably be more phony measures and budgetary gimmicks (even though Governor Brown pledged that there would be none of these).

As for the budget, we’ll have to see; but as for tax increases, it’s very clear. They’re not going to be happening, and plans need to be made for other methods of handling the situation.

Right at the end of the tax season, the Franchise Tax Board released its list of the top 250 delinquencies. There is still a celebrity or two on the list, but the new list is a bit more mundane than in the past.

It took $305,057.11 to make the list (that’s what Affordable Termite Control, Inc. of nearby Orange owes the FTB). Tops on the list are Halsey and Shannon Minor of Los Angeles; they owe $14.2 million to the FTB. Mr. Minor is the founder of CNET, and he acknowledged last year the tax debt. His ability to pay the debt may be questionable, though; Mr. Minor also owes Charlottesville, Virginia $84,000.

Still remaining on the list is Pamela Anderson. Yes, that Pamela Anderson; she owes the FTB nearly $607,861.

This time around Ms. Anderson appears to be the lone celebrity on the mix. And that’s likely a good thing for Hollywood’s elite, as this isn’t the list you want to be on.

Here in the Bronze Golden State, discovering that you rank at the bottom of a list is all in a day’s work. Another list of business climate, this one from the Small Business & Entrepreneurship Council, ranks the best and worst states for small business owners. While this list came out in December, I didn’t discover it until this past week.

First, here are the top 10 states:

1. South Dakota
2. Nevada
3. Texas
4. Wyoming
5. Washington
6. Florida
7. Alabama
8. South Carolina
9. Ohio
10. Colorado

And now, the worst ten:

41.  Connecticut
42. Minnesota
43. Massachusetts
44. Hawaii
45. Rhode Island
46. Maine
47. Vermont
48. California
49. New York
50. New Jersey
51. District of Columbia

You might notice that the top six states share a common factor: no personal income tax. Somehow, I doubt that this list will make its way to any of the Democratic leadership in Sacramento. At least, California does not have the worst business environment of the 50 states and the District of Columbia.

Democrats in California’s legislature are looking for ways to balance the budget. If you or I were spending $28 billion more than we were taking in, we would cut spending. But that’s not how Democrats in Sacramento approach the problem.

Instead, State Senator Darrell Steinberg wants to allow local school districts to impose income taxes in California. On the bright side, if such legislation were to pass California would likely end up with the top rating…as the worst business environment in the country.

Perhaps Senator Steinberg should look at an op-ed written by the president of CKE Restaurants, Andrew Puzder. Mr. Puzder asks how California can add jobs, and notes that cutting regulations, taming lawyers, and reducing the tax burden are essential. “We have some of the highest tax rates in the nation for businesses and personal incomes.” I doubt Mr. Puzder would say that adding local income taxes would help California businesses.

Luckily, it appears that Republicans in the state legislature are holding firm on their pledge for no new taxes. It’s likely that this, and the proposed tax on soft drinks, will both fizz out.