Taxable Talk

The California budget fiasco continues. In theory, the state must have a new budget in place by June 15th—tomorrow—in order for short-term loans to be taken out in July.

There’s no chance of that.

It’s not that Democrats and Republicans disagree on there being a major problem. There’s no doubt that California faces a $24 billion budget deficit (and growing). Unfortunately, that’s about all they agree on.

Democrats still hope to be able to pass legislation that increases revenues, probably through “user fees.” There’s a danger here, though; courts have struck down “user fees” that were disguised taxes.

Republicans vow to block all new taxes. It does appear that California voters don’t want any more taxes. The last time that California faced a budget fiasco (February) new taxes were passed. Californians were told that the budget that passed resolved everything through the end of the 2009-2010 fiscal year (June 2010). That wasn’t true.

Amazingly, only Governor Schwarzenegger has proposed a budget. His budget has cuts everywhere. That’s what needs to happen. The bureaucracy needs to be cut. Regulations need to be rolled back. The state needs to open negotiations with unions and force changes in pension plans to defined contribution from defined benefit. The pain must be shared.

Taxpayers are sharing in it. We’ve seen sales taxes increased by 1%, and state income taxes increased by 0.25%. Will our legislature actually take action by June 15th? No. Can it at least take action by June 30th?

We’ll see, but I wouldn’t bet on it.

As a tax accountant I know of several deadlines that fall on June 15th. If you were out of the country on April 15th, June 15th is the deadline to file your tax return (or file an extension). June 15th is also the date of the second quarter estimated tax payments for individuals and corporations. This year, though, June 15th is yet another deadline.

That’s the day that California needs to have a balanced budget or the state will be unable to borrow funds according to Governor Schwarzenegger. California faces a $24 billion deficit for the 2009-2010 fiscal year that begins on July 1st.

I doubt we’ll see a budget deal done by the deadline. Democrats are continuing in their normal ways of pandering to their constituents (unions). Senator George Runner’s commentary on AB656 shows that at least one Democrat has no comprehension that higher taxes lead to lower sales.

Unfortunately, until the elected officials feel pain I don’t think we’ll see a resolution to the crisis. Democrats are floating the idea of getting bailed out by Washington. As long as they think that’s a possibility meaningful cuts in California’s budget won’t occur. I hope I’m wrong about this but I doubt it. I expect this budget mess to drag on into the fall.

Back in November California voters passed Proposition 8. This constitutional amendment to California’s constitution declared that the only legal marriage is between a man and a woman. The California Supreme Court upheld Proposition 8 today.

The impact of this is minimal. For federal tax purposes a same sex couple cannot file as married; for California tax purposes a registered domestic partnership or a same sex couple married during the five months when such marriages did occur will file a married return.