Taxable Talk

California’s Budget Analyst announced that the state is already $6 billion in the hole, and that the state faces a $25 billion deficit for 2011. Personally, I think that’s understating the problem: I suspect the deficit will rise to $30 billion. Governor-Elect Jerry Brown has pledged no new taxes or tax hikes but the public doesn’t believe him.

Current Governor Arnold Schwarzenegger has called the current legislature into a special session to deal with the $6 billion deficit. I’m not sure what he hopes for by this, as the only solution is drastic cuts to state government. And that solution is one which the Democrats who control the legislature will not touch.

The Franchise Tax Board has implemented a new “MyFTB Account.” This replaces the old “My Account” on the FTB’s website. Back in September I saw a demonstration of the new website and I was impressed. The system shows withholding, estimated payments, 1099-Gs and 1099-INTs issued by the FTB, and allows taxpayers and their representatives access to that information. Individuals (but not tax professionals) can change their addresses using the system.

Tax professionals must register to use the system. Registration is simple and straightforward. (Individuals must also register and its also simple and straightforward.)

There is one change, though, that will impact tax professionals. You must now collect a Form 743 from your client to obtain his information.

It looks to me like the system is an improvement over the old My Account system. No more looking up Customer Service Numbers, and then reentering the same information to get the data you need. Kudos to the FTB.

Californians demonstrated their usual inimitable politics yesterday. Democrats won nearly every statewide office. The next Governor is Jerry Brown. Mr. Brown promised that there would be no tax increases without a vote of the people. (Barbara Boxer was reelected to the Senate.) How Mr. Brown assuages his union supporters and doesn’t make the drastic cuts that just have to happen without tax increases will be the story of next summer.

It will be easier for Democrats to pass a budget. They no longer need Republican votes as Proposition 25 passed (a majority can now enact a budget rather than a 2/3 vote). However, Californians also passed Proposition 26; most “user fees” will need a 2/3 vote to pass. Californians rejected Proposition 21, so there won’t be a tax to support state parks. Proposition 24 failed, so we’ll have conformity between federal and California law for some business NOLs and multi-state issues.

Voters don’t like gerrymandering, and they supported Proposition 20 (letting a non-partisan commission draw Congressional districts) and rejected Proposition 27 (which would have disbanded the non-partisan commission). Proposition 19, which would have legalized marijuana, failed; it’s almost certain had it passed that it would have been thrown out by the courts as being in violation of federal law.

Proposition 22 passed. The state can’t raid transportation funds and other local funds in the future.

I’m disappointed that Proposition 23 (the proposed suspension of the global warming/greenhouse gas measure) failed. California’s attempt to change the laws of thermodynamics is doomed to failure, and a lot of good money will be wasted here.

Overall, Governor-Elect Brown is looking at a Hobson’s choice for his first budget. He can cut funding to his supporters (public employee unions) or he can renege on his promise regarding tax increases. When the state finance office notes the likely $30 billion deficit, it will be interesting to see if he offends his supporters, the voters, or both.

Congratulations, California! You have the second worst business climate in the country!

Earlier today the Tax Foundation released its 2011 report on the Business Tax Climate Index. Here are the ten worst states:

50. New York
49. California
48. New Jersey
47. Connecticut
46. Ohio
45. Iowa
44. Maryland
43. Minnesota
42. Rhode Island
41. North Carolina

Here are the ten best states:

1. South Dakota
2. Alaska
3. Wyoming
4. Nevada
5. Florida
6. Montana
7. New Hampshire
8. Delaware
9. Utah
10. Indiana

One conclusion the Tax Foundation notes is, hopefully, self-obvious:

The lesson is simple; a state that raises sufficient revenue without one of the major taxes will, all things being equal, out-compete those states that levy every tax in the state tax collector’s arsenal.

Meanwhile, “The states in the bottom ten suffer from the same afflictions: complex, non-neutral taxes with comparatively high rates.”

The report is lengthy but has numerous nuggets that all tax geeks (and policymakers) should read. Unfortunately, it is highly unlikely that any lawmakers in the Bronze Golden State will take heed of the ideas noted above.