From Russ Fox, EA, of Clayton Financial and Tax of Las Vegas, NV. All of the items below are for information only and are not meant as tax advice. Please consult your own tax advisor to see how each item impacts your own situation.
California’s Controller, John Chiang, called California’s cash situation “precarious.” Mr. Chiang called on the legislature and Governor Schwarzenegger to act on the $9 billion of budget cuts by March. The alternative is that California will run out of cash.
If this sounds familiar, it should. This situation happened last year, and led to the bad budget fix last February which included tax increases.
The budget that Governor Schwarzenegger proposed earlier this month has billions of budget cuts in it. However, Democrats in Sacramento showed that they were completely out of touch with both fiscal and political realities when they passed a $200 billion health care plan in the State Assembly. (If this plan should reach Governor Schwarzenegger’s desk, he would undoubtedly veto it.) I do not expect the budget negotiations to go smoothly this year. Indeed, I can’t see a budget passing by March…or May. Even July is optimistic.
The time of easy budget cuts is gone. Most Californians do not want tax increases. It’s time to cut the budget with a chainsaw. Unfortunately, the politicians in Sacramento haven’t figured that out.
Expect IOUs to be issued again in about a month.
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The cynic in me was correct. Mr. McCarthy is looking at ways of increasing tax revenues to help Iowa’s budget situation. Mr. McCarthy said, “We’re looking at ways that would be win-win for the institutions, the communities and the state.” I’ll translate that: We’re looking at a way of increasing tax revenues. Since I can’t add video poker terminals (that was voted down by the Iowa legislature) this looks like a way I can increase revenues so I can spend more money.
Perhaps I am just a little too cynical about Mr. McCarthy’s motives. However, this appears to be yet another case where the cynics are right.
The IRS came out with a FAQ on the new regulations of tax professionals. Among the nuggets on the FAQ is that payroll tax companies will have to register (though they may not have to take the competency exam) and that California CTEC practitioners will have to take the new exam. It also appears that California isn’t going to be dropping the CTEC requirements, so tax practitioners who are not CPAs, EAs, or attorneys in California will have dual requirements.
Hat Tip: Roth Tax Updates
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There is an opportunity here if you owe money, though. If you file a paper return, your return may sit gathering dust for four months. That’s quite a bit of float on what you owe. However, if you file a paper return and are expecting a refund, you may be Waiting for Godot.
There was an election in Massachusetts on Tuesday. As I’m sure you’re aware, Republican Scott Brown is the new Republican Senator from Massachusetts. Apparently, Democrats in Sacramento are blind to the obvious.
The voters in Massachusetts, a state more liberal than California, had enough of tax and spend, and the Democrats’ health care plan. They wanted fiscal responsibility. So what happened in Sacramento today?
SB810, a $220 billion healthcare plan, passed on a party-line vote today in Sacramento. The bill would create a one-payer system, is far more intrusive than any of the proposals in Washington, and is one that would officially bankrupt California. The good news is that it is extraordinarily unlikely that Governor Schwarzenegger would sign the measure.
Still, why this measure even saw the light of day says a lot about the dysfunction in Sacramento and why I expect more smoke and mirrors to be the “solution” to the budget crisis in the state capital.
As I’ve mentioned before, do not expect conformity in California. Our legislature has its own issues (see the next post), and there are more important things on its agenda.
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Whether you should take the deduction in 2009 is another question, though. For most individuals, it won’t make a huge difference. For high income individuals, given that 2010 tax rates figure to be higher, you will likely get more bang for the buck by waiting until you file your 2010 taxes to take the deduction.
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Many of you may remember the movie classic Network:
On Tuesday, voters in Massachusetts sent a message to politicians. Massachusetts elected a Republican Senator. To put that in perspective, the last time a Republican was elected to the Senate in Massachusetts was in 1976, nearly forty years ago.
Massachusetts elects Democrats the same as the Sun rises in the eastern sky every day. But that didn’t happen on Tuesday. The why of that has to both directly and indirectly with taxes.
Massachusetts has been known informally for years as “Taxachusetts.” Actually, the Commonwealth is no longer among the “leaders” in high taxes in the U.S. It’s not that Massachusetts has gotten better; rather, other states, California included, have gotten worse. Still, Massachusetts recently had an initiative to eliminate its income tax (it failed). The current governor, Democrat Deval Patrick, has proposed tax increases. The voters in Massachusetts haven’t shown much love for that idea.
With the Massachusetts legislature and the governship in the hands of Democrats, wouldn’t voters in liberal Massachusetts be happy? Not hardly. Now add in Congress–completely in the hands of Democrats–and a Democratic President. During the past year, they have spent like there’s no tomorrow. Massachusetts residents may be liberal, but they’re not dumb. Sooner or later the bill for that spending must come due.
The last straw was the current health care “reform” measure. It doesn’t take a genius to see the money being wasted in this legislation. To get enough votes so that it would pass the Senate, giveaways (measured in billions of dollars) were done for Louisiana, Nebraska, and Connecticut; there are probably many, many more that no one knows about. After all, the legislation runs over 2,700 pages. I, and other bloggers, have noted, “It’s unpopular, unworkable, and insane, so naturally they’re in a hurry to pass it.”
Voters in Massachusetts and elsewhere want a small, nimble government. What they see coming out of Washington and the local state house is bloated bureaucracy. If you are a politician running for office this year a message has been sent. Imagine you’re going through a tunnel, and you see a light getting brighter and brighter. For those politicians who will embrace what voters want, the tunnel is at an end. I believe that for many politicians the light is an oncoming train.
