Government Hypocrisy: “Save More”

Photo courtesy of kenteegardin, flickr

Photo courtesy of kenteegardin, flickr

American government is so ubiquitous it even offers advice about New Year’s resolutions. However, its guidance to citizens mainly illustrates ideas government violates. Consider one example from the About USA.gov site: “Save more.”

That is not a very controversial resolution for an uncertain world. But the massive and still growing government debt and its far larger unfunded liabilities makes it the largest violator of its own resolution. Talk about “do as I say, not as I do.” Further, the main reason people save too little is that government does so much that discourages saving and investment, making the Hippocratic oath –“First, do no harm” — a better means to increase savings.

One huge illustration is Social Security. People have been led to substitute its “contributions” and retirement benefits for funds they would have saved to finance their “golden years.” Its promises also dramatically exceed what funds will be available, making people anticipate richer retirements than they will actually have, reducing savings more. Those who save enough to provide well for retirement also face income taxes on most of their Social Security benefits as well.

Social Security exacerbates the adverse effects of budget deficits, which divert funds that would have added investment into government spending.

Taxes on capital reduce the after-tax return on saving and investment, also reducing saving. These include property taxes that, while relatively small percentages of the capital value, represent sizable fractions of annual income generated. Then state and federal (and sometimes local) corporate taxes take further bites from after-tax returns. The implicit “tax” imposed by regulatory burdens must also be borne before earnings can reach investors.

Personal income taxes at up to three levels of government reduce saving further. Investment income left after other taxes is taxed again if paid out as dividends.  Earnings from saving and investment can also trigger additional tax burdens by triggering phase-outs of income tax deductions and exemptions.

If investment earnings are retained and reinvested, increasing asset values, they are taxed as capital gains. And even increases in asset values from inflation are taxed as real increases in wealth.

Medicare, whose unfunded liabilities are far greater than Social Security’s, reduces incentives to save for future medical costs. Current earners, forced to cover three quarters of the cost, are left with less to save. Medicaid coverage of nursing home costs only after other assets are virtually exhausted undermines another savings motive.

Unemployment benefits, along with food stamps and other poverty programs, also reduce the need for a nest egg, “just in case.” And as illustrated by so many disasters and crises, government steps in to assist those who “need” it, reducing the incentives for financial self-responsibility.

Estate taxes also reduce successful savers’ ability to pass on assets as bequests, eroding another savings motive. And monetary policy that has long kept interest rates near zero have undermined incentives to save as well.

Together, these government policies punish savings heavily, resulting in large numbers without appreciable savings. But fixing that saving problem doesn’t require government to tell us to resolve to save more. It doesn’t require ever more government intervention to “solve” a problem its existing interventions have created. It only requires a government resolution to stop aggressively undermining incentives to save as it does now.

Gary M. Galles is a research fellow with the Independent Institute in Oakland, and a professor of economics at Pepperdine University. His books include Lines of Liberty (2015), Faulty Premises, Faulty Policies (2014), and Apostle of Peace (2013).

CA Doesn’t Need Additional Tax Revenue

TaxesThere is an old expression, “carrying coals to Newcastle,” to describe a useless activity or fool’s errand. Sort of like shipping pineapples to Hawaii or, bringing it closer to home, sending more tax dollars to Sacramento.

The truth is, Sacramento is awash in cash. The Legislature’s budget analyst estimates that this fiscal year will end with $3 billion more than anticipated and, by 2017, state reserves may even top $11 billion.

For the political ruling class, this is an embarrassment. Last summer, the governor called a special session of the Legislature in an attempt to secure legislative approval of a new health care tax on managed care organizations (MCOs) because the current tax is about to expire. He also called another special session to deal with transportation funding. In both cases, Republicans in the Legislature are making trouble for those backing new taxes by pointing to the obvious: The state already has plenty of money.

This embarrassment of riches is also bad for the morale of special interests looking to increase taxes via ballot measures. Public sector unions are pushing for an extension in the “temporary” tax increase approved by voters in 2012.

But they have yet to show a united front and are fighting over who will get the money. Whether the proceeds go to education, as favored by the state’s most powerful special interest, the California Teachers Association, or to the health care industry, as is supported by other union and hospital interests, has yet to be decided.

Health care interests may also pursue a new tobacco tax of $2 a pack. Since smokers and tobacco companies are only slightly more popular than ISIS, pundits believe – perhaps naively – that this initiative will pass. (They’ve been wrong before as tobacco taxes are highly regressive.) Or perhaps the “evil” oil companies will be the target in a state where motorists already pay 75 cents a gallon more than the national average. Good luck with that.

Campaigns for initiatives to impose new or higher taxes tend to use happy talk to focus on the benefits to the needy or the general population and ignore the actual goal. For example, Proposition 30, the sales and income tax increase, was sold as a boon to education when, in reality, much of the revenue is needed to keep the teachers’ pension system solvent.

For any tax increases being pushed by special interests, voters should keep in mind that actual beneficiaries tend to be the providers of services – think pay and benefits — not the recipients.

This brings us to another potential initiative with the sympathetic sounding title of “Lifting Children and Families Out of Poverty Act.” The measure would place a property tax surcharge on higher value homes and property.

If this proposal actually reaches the ballot, it will, no doubt be marketed as a tax on the well-off so they can pay their “fair share” to help needy children. Backers of this tax will not mention that, as usual, those receiving the majority of benefits are likely to be the providers of services, not those in poverty. And don’t expect voters to be told about California’s already generous entitlement programs or, even with record spending, the hefty state surplus. The fact that this measure would be the first step in destroying Proposition 13 protections for all property owners, including those of modest means, will be glossed over as initiative promoters use the less fortunate as human shields to justify themselves.

Jon Coupal is president of the Howard Jarvis Taxpayers Association — California’s largest grass-roots taxpayer organization dedicated to the protection of Proposition 13 and the advancement of taxpayers’ rights.

Poll: Will Voters Support Tax Proposals on 2016 Ballot?

taxesIn the shadow of my commentary yesterday on the possible tax measures on the 2016 ballot comes the Public Policy Institute of California poll that takes the standing of many of the potential tax initiatives. This snapshot in time indicates supporters of the tax increases have a lot of work to do to convince the public to vote for them.

But the way the questions were asked must be considered when weighing the results.

The idea of extending Proposition 30 is becoming more practical than theoretical with the submission of two separate ballot measures to achieve that goal. One measure, filed chiefly by the California Teachers Association, would extend Prop. 30 for 12 years. The second measure filed by the California Hospitals Association, a health care union and a children’s advocacy group, would make the Prop. 30 taxes permanent.

The voters appear divided on extending Prop. 30 with 49% in favor of extension and 46% opposed. However, those favoring the extension drop to 32% if the taxes are made permanent.

One odd result from the poll was the great support for the Prop. 30 extension in the San Francisco Bay Area (63%) and much less support in the Central Valley (50%); odd, because this tax is centered on the wealthy, those with incomes of $250,000 and more. There are many more high-end taxpayers in the Bay Area than the Central Valley.

However, the way the question was asked may have something to do with this disparity. The question described the Proposition 30 tax that exists today. Poll respondents were asked if the taxes on incomes over $250,000 and the quarter cent sales tax should be extended. But, the quarter cent sales tax portion of the Prop. 30 tax measure is not included in either of the extension plans that were filed.

Could Central Valley voters have focused on the sales tax piece and would their answers be different if they knew the extension only affected high-end income taxpayers?

Once again, PPIC asked about splitting the property tax roll under Proposition 13 treating commercial property differently than residential property by taxing commercial property according to current market value. Likely voters approved of the idea by 55% with 39% opposed.

But as stated here many times before, this basic question doesn’t inform potential voters of consequences related to this issue. There was no effort to deal with either the potential positives or negatives of changing the property tax system. Those issues will certainly be aired during an expensive campaign over a split roll and undoubtedly would lead to different results than the poll currently reflects.

Two other taxes that are being discussed received quite different results. An oil extraction tax found 49% support with likely voters; a cigarette tax was supported by 66% of likely voters.

There could be a lot of money spent in a campaign opposed to these taxes and a fair amount of change in support. However, looking at all the tax measures at this moment in time, if the old rule were applied that an initiative needs to have at least 60% support in early polls to have a fighting chance at passing, then only the cigarette tax looks possible at this time.

Of course, if the ballot is full of tax proposals the old rules may not apply.

Originally published by Fox and Hounds Daily

Special Tax Sessions Announced by Gov. Brown

taxesIn announcing the budget deal with the Legislature, Governor Jerry Brown announced two special sessions to deal with transportation and Medi-Cal funding. Call them the Special Tax Sessions.

In the press release announcing the sessions, the governor stated that the sessions were to “find more adequate funding for our roads and health care programs.”

The governor asked for “permanent and sustainable funding to maintain and repair the state’s transportation and critical infrastructure.” He also wants “permanent and sustainable funding to provide at least $1.1 billion annually to stabilize the state’s General Fund costs for Medi-Cal,” some of which would be used to meet the demands of programs Democratic legislators sought funds for in the current budget such as In-Home Supportive Services.

At the governor’s press conference announcing the budget deal, reporters asked Brown about his first term (third term?) campaign pledge to only seek tax increases with approval of voters. Brown brushed aside the old pledge indicating the pledge only applied to his first term.

Add it all up and there will be a push for tax or fee increases to support the governor’s call for “permanent and sustainable funding.” Discussions will revolve around gas taxes and a higher car tax or maybe a mileage fee for transportation; perhaps an increased cigarette tax and other healthcare taxes for Medi-Cal.

Brown might hope for support from the business community for the transportation and infrastructure fix. Those issues have been of on-going concern to business.

Still, the large influx of dollars in the current budget and the talk of tax proposals that may end up on next year’s ballot will only increase the anxiety of businesses and taxpayers alike and could result in stalemated special sessions.

Originally published by Fox and Hounds Daily

CA Tax & Spend Issues Reflect National Debate

Yesterday, two articles appeared that took note of circumstances surrounding California’s taxing and spending. As the most populated state in the union that is not too surprising. However, is the national attention a reflection of how the press sees some of the coming debates in next year’s presidential contest?

On the surface, the news report in the Washington Times and the editorial in the Wall Street Journal seem centered on local California matters. But each has strains that echo in the national debate.

The Washington Times focused on the effort to change Proposition 13 by creating a “split roll” to tax business property differently than residential property. The article talked about the difficulty in amending Prop 13 in the past but suggested a change in Californians’ voting habits might make the property tax reform more vulnerable.

Others don’t see it that way. Claremont McKenna College professor John Pitney was quoted in the article. “A lot of Democrats would like to see it pass, but their messaging tends to work against it. Gov. Brown and other top Democrats have been touting robust revenues in recent months. But if government coffers are so flush, why raise taxes?”

The issue of those robust revenues was the subject of the Wall Street Journal editorial. The message from the Journal editors was to remember when past California legislatures splurged with surplus dollars only to face a day of reckoning when the economy hit a downturn.

The Journal complained that while much of the new spending is aimed at the poor, the spending programs instituted for the poor seemed to do little to relieve the problem of poverty with California maintaining the nation’s highest poverty rate. The Journal suggested the tax system was to blame for chasing middle class manufacturing jobs away.

The financial equality issue will certainly be a focus of the presidential debates. California’s experiments in searching for a solution to aid the poor through expanded spending programs will be fodder for that debate.

Meanwhile, the campaign to undo a portion of Proposition 13 is another “tax-the-rich” effort. The Washington Times observed the campaign to change the measure is focused on “giant corporations” and “America’s wealthiest commercial property owners.” This approach falls neatly into the anti-Wall Street rhetoric on the national level.

Of course, the split roll is not the same thing as attacking Wall Street. A split roll would affect all of California businesses.

The national media is interested in the themes presented by the California taxing and spending discussion. Will they sway potential voters? After all, Proposition 13 itself was the catalyst for changing the conversation about taxes in the 1980s. Those who desire to change that conversation would start with changing Prop 13.

California has often been called the bellwether for what will happen next in American political circles. How the California campaigns on taxes and spending progress (or do not progress) may once again serve that bellwether role.

Originally published by Fox and Hounds Daily

New Bill Would Allow Cities to Ratchet Up Sales Taxes Even Higher

LAO Sales Tax State Comparison ChartAlthough Californians already pay some of the highest sales taxes in the nation, a bill that recently passed the Assembly paves the way for the sales tax to go even higher. Assembly Bill 464 increases to 3 percent (from the current 2 percent cap) the maximum sales tax rate that can be levied by local governments.

That potential 3 percent sales tax levied by cities and counties is in addition to the statewide 7.5 percent sales tax, which could result in a combined 10.5 percent tax in some areas of the state. Tax hikes require majority voter approval for general purpose levies and two-thirds approval for special purposes.

The average state and local combined sales tax in California is 8.5 percent, according to a recent report by the Legislative Analyst’s Office. The lowest rate of 7.5 percent predominates in rural counties, while the highest rates are in urban areas. Residents in eight cities in the Bay Area and Los Angeles County are currently paying a 10 percent sales tax because their counties have received exemptions from the 2 percent cap.

“AB464 is about local control and flexibility,” said the bill’s author Assemblyman Kevin Mullin, D-San Mateo, on the Assembly floor May 14. “It gives local voters the ability to raise revenue to fund important public services, including transportation, public safety and libraries. This bill is crucial, because if just one city in a county reaches the [2 percent] cap, then the entire county is precluded from having voters raise any additional taxes, hindering key transportation projects or attempts to enhance public safety.

LAO Sales Tax Chart“As a result, a flurry of legislation has been signed into law creating individual cap exceptions across the state. AB464 reduces the need for this one-off legislation by lifting the cap statewide. Please join me in granting voters the ability to raise sufficient revenue to fund public services locally in California.”

There was no debate on the bill, which passed along party lines 45-31. It’s supported by California’s counties and their transportation commissions along with government employee unions.

The California Taxpayers Association issued an opposition “floor alert” on the bill that was signed by numerous business and local taxpayer organizations. It states that “California already has the highest sales and use tax rate in the country,” and provides three arguments against raising the cap:

  • Increases the cost of doing business. Businesses face a significant sales and use tax burden in California, and business purchases account for roughly 40 percent of all sales and use tax collected by state and local governments. California is one of the few states that requires businesses to pay sales and use tax on manufacturing and R&D equipment bought and used in the state, making California a very expensive state to operate in, particularly when the sales tax rate is 10 percent in some California cities.
  • The sales and use tax is a regressive tax that impacts California’s most vulnerable residents, making it more difficult for them to budget and purchase everyday necessities. California’s economy is improving, resulting in improved revenue collections this year. Now is the wrong time to ask taxpayers, especially those that can least afford it, to spend more of their income to pay taxes.
  • Raises the sales tax rate to 11 percent in some areas. [T]he Los Angeles Metropolitan Transit Authority imposes a 0.5 percent tax in excess of current limitations for all of Los Angeles County. This bill would authorize this district to increase its rate to 11 percent. This level of taxation is excessive, and exacerbates the problems described above.

That last argument may be in error. The bill caps the city/county-levied sales tax to 3 percent above the statewide rate, which would equal a maximum of 10.5 percent even for districts with current 0.5 percent cap exceptions.

The immediate beneficiaries of AB464 are Alameda, Contra Costa, Los Angeles and San Mateo counties, which have all reached the 2 percent limit, as well as Marin, San Diego and Sonoma counties, which are near the 2 percent limit, according to the Assembly’s legislative analysis.

California’s sales tax brought in $48 billion in 2013–14. About half of it goes to the state government’s general fund, making it the second largest general fund source after the income tax, which accounts for two-thirds. One percent of the sales tax goes to cities’ and counties’ general funds; the rest is aimed at specific programs such as public safety and transportation.

LAO Sales Tax Increase Chart

The statewide sales tax rate began at 2.5 percent in 1933. Although the tax rate has tripled since then and its revenue has increased at a 7.3 percent annual rate, the sales tax has actually decreased as a share of total state revenue. “In the 1950s, the sales tax accounted for the majority of General Fund revenue, while the personal income tax contributed less than one-fifth,” the LAO report said. “Since then, personal income tax revenue has grown rapidly due to growth in real incomes, the state’s progressive rate structure and increased capital gains.”

In 1969, cities and counties were granted the authorization to pass their own sales tax increases, mostly benefiting transportation improvements.

Although not nearly as volatile a revenue source as the income tax, revenue from the sales tax can vary significantly depending on the state of the economy. In 1974-75 sales tax revenue increased 22 percent, but in 2008-09 it declined 10 percent. Overall, however, adjusting for increased rate changes, inflation and population, sales tax revenue has remained roughly constant per capita since 1970–71, according to the LAO.

AB464 will next be considered by the Senate Rules Committee.

Small Measures Can Provide Large Benefits to Taxpayers

TaxesThose who follow the political machinations in Sacramento might well conclude that not much good emerges from the California Legislature. Gas taxes, attacks on home ownership, a tax increase on commercial property, ever-expanding pension deficits, high speed rail, there seems an endless list of proposals for which the average taxpayer is supposed to foot the bill, while others receive the benefit.

With all this bad news, it is easy to overlook some relatively obscure bills that could have an oversized beneficial impact on taxpayers.
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Assembly Bill 809 by Assembly Member Jay Obernolte (Hesperia) is a proposal that will aid local voters deciding on tax measures by providing some much needed transparency. Under current law, there is no word limit requirement on the ballot label – the descriptive information that appears on the ballot — for local tax measures. The ballot label is the last thing most citizens see before casting their vote. The label is often filled with whole paragraphs explaining how the funds will be spent, but little or no information that helps voters determine what it will cost them.

AB809 states that the ballot label will include the tax rate increase, its duration, and a revenue estimate of what it will generate annually. If voters approve a county-wide sales tax increase for 30-40 years, they should at least be fully aware of the cost in the years to come. By placing this information in the ballot label, voters can make informed decisions that will best benefit their communities.

Assembly Bill 1378 by Assembly Member Chris Holden (Pasadena) expands the provisions of Proposition 60, which was based on an idea by Howard Jarvis and approved by voters in 1986, that provides property tax relief for seniors. Proposition 60 allows for an individual over the age of 55 to transfer the Proposition 13 base value of their property to a new residence in the same county as long as it doesn’t exceed the value of their current home based on its sales price. While this provides a tax benefit to seniors, any cost to government is made up when the first home sells and goes on the assessor’s books at market value for tax purposes. Without being able to retain their Proposition 13 tax base, many seniors would be locked into their current residence, unable to move, and their homes would remain off the market.

Under current law, a married couple can only take advantage of this tax exemption once. AB1378 would allow each individual in a married relationship to take advantage of the exemption, allowing them to move a second time and transfer their lower tax base. The result is increased residential flexibility that benefits our seniors.

With life expectancy increasing, we cannot assume that individuals will remain in the same house in retirement for 30 years. Individuals may decide to move again to be closer to their children or because of health difficulties that makes their current home impractical. They should not be punished with higher property taxes in retirement for circumstances that may be beyond their control. AB1378 is a common-sense proposal that adapts California law to the changing lifestyle requirements of our aging population.

Just like the small, often overlooked, belt buckle can have tremendous impact on the success of a pair of pants, these unheralded bills, AB809 and AB1378, have the potential to contribute significantly to the well-being of all taxpayers. AB809 and AB1378 deserve to be adopted by the Legislature and signed into law by the governor.

Jon Coupal is president of the Howard Jarvis Taxpayers Association — California’s largest grass-roots taxpayer organization dedicated to the protection of Proposition 13 and the advancement of taxpayers’ rights.

Air Board Asks Courts to Create New Tax

carbon-tax-1In a landmark case before the Third District Court of Appeal, the California Air Resources Board (ARB) recently argued for creation of an unprecedented tax doctrine that could raise billions of dollars in new revenues. The ARB described the new revenue not as a tax or a fee (or any other recognized revenue-raising mechanism), but as a “byproduct” of a regulatory program.

The case, California Chamber of Commerce v. California Air Resources Board, challenges the legality of the cap-and-trade auction ARB set up as part of its program to reduce greenhouse gas (GHG) emissions to meet goals outlined in AB 32, the climate change law.

CalChamber is arguing that (1) the ARB exceeded the authority the law granted it by reserving GHG allowances to itself and auctioning those allowances to GHG emitters to raise revenues, and (2) such an auction is a “tax” requiring a two-thirds vote of the Legislature, which was not obtained.

(CalChamber is not challenging AB 32 or the cap-and-trade mechanism itself, because the goals of AB 32 can be achieved effectively using cap and trade. In fact, the efficacy of cap and trade to meet the GHG reduction goals would be unaffected in the absence of the auction.)

The lawsuit aims to prevent the powerful regulatory agency from expanding its reach beyond the boundaries set by the Legislature, and to maintain the integrity of the revenue-raising rules of Proposition 13. But the ARB has raised the stakes even higher by suggesting that the revenues raised by the auction are neither taxes nor fees.

The auctions so far have raised nearly $1.6 billion in revenues that have been deposited into state coffers. The Legislative Analyst has estimated the auction will raise tens of billions more dollars by 2020.

The ARB instead claims that the auction is a legitimate exercise of its regulatory powers and that the billions in new revenues are “incidental” to that regulation. In fact, the ARB flatly states that the auction was not enacted for the purpose of increasing revenues; therefore, it is not a tax.

The Air Board had previously acknowledged that the auction revenues resided comfortably within the state’s tax system, and as “a non-distortionary source of proceeds” could be used “as a substitute for distortionary taxes such as income and sales taxes.”

The lead doctrine on determining whether a charge is a fee or a tax is the California Supreme Court decision in Sinclair Paint v. Board of Equalization. The court held that a regulatory fee is legitimate if (1) there is a reasonable relationship between the amount charged and the burdens imposed by the fee payer’s operations; (2) it is not used for unrelated revenue purposes; and (3) the remedial measures funded with the charge are caused by or connected to the fee payer’s operations. Lacking any of these factors, the charge is a tax.

Since it is apparent that the auction cannot meet these criteria, the ARB dismissed Sinclair’s relevance, stating that the “requirements that govern fees are not useful for reviewing other exercises of the police power.” Even though the ARB claims the revenues are incidental to a regulatory program, it declined to label them as “fees.”

In other words, the ARB has asked the court—in the case of fees imposed for regulatory purposes—to disregard the leading doctrine on regulatory fees.

To be sure, there are charges that government legitimately imposes that are neither fees nor taxes which fit comfortably within the Proposition 13 rubric: special assessments and development fees for infrastructure, charges for goods and services, fines and penalties for law breaking.

But the ARB has sought refuge in none of those time-tested revenue constructs. Instead, it has asked the court to invent a new, unique category of non-tax, non-fee, non-assessment, non-penalty, non-service charge that fits the auction revenue system.

The ARB is seeking a safe harbor for revenues “incidental to regulation” that it claims are not regulatory fees, and which will generate tens of billions of dollars for new spending programs that somehow are not taxes. In fact, next year the revenues from auctions will be one of the largest sources of state revenues—and bound to grow as the ARB allocates even more allowances to itself.

CalChamber has vigorously disputed this new doctrine, calling it “unprecedented, undemocratic and amorphous.” Proposition 13 and the Sinclair decision have limited and rationalized tax and fee doctrine for 37 years, setting out the rules that balance operational flexibility with accountability.

The Court of Appeal will hear oral arguments in this case later this year.

 is president of the California Foundation for Commerce and Education

Originally published by Fox and Hounds Daily

Berkeley Soda Tax: First Month’s Take, $116,000

As reported by the Contra Costa Times:

BERKELEY — Several City Council members and other boosters of Berkeley’s first-in-the-nation soda tax giddily reported the first month’s haul — $116,000 — on the steps of the municipal office building on Milvia Street on Monday.

Councilman Laurie Capitelli, a prominent booster of the freshly enacted tax, projected the first year’s proceeds at about $1.2 million.

On Nov. 4, voters approved Measure D, a 1-cent-per-ounce tax on the distribution of most sugar-sweetened beverages, by a better than 3-1 margin, even though, as a general tax with proceeds to go into the general fund, it needed only a simple majority.

The city did not estimate what the tax might bring in, but …

Click here to read the full article

Despite record tax haul, CA legislators seek to raise rates

tax signWith a big tax surplus flowing into state coffers, California shattered records last year with a historic haul dwarfing those of other large states around the country. This year, meanwhile, legislators planned still further increases.

“During the 2013-14 fiscal year that ended last June,” the Sacramento Bee reported, “California collected $138.1 billion in taxes of all kinds, 16 percent of all state taxes collected in the nation and more than the next two states, New York and Texas, combined.” The majority of the sum came from personal and corporate income taxes, according to the Bee.

Money maze

At first blush, California’s cash-in promised straightforward results. “Through the end of March, state general fund revenue was about $1.3 billion ahead of projections,” Jason Sisney, California’s chief deputy legislative analyst, told the San Francisco Chronicle. “April revenue is likely to add at least $1 billion more than projected.”

But thanks to the Golden State’s arcane fiscal requirements, revenue was set to be apportioned in counterintuitive ways:

“Under the state’s budget formulas, ‘virtually all or more than all of the additional revenue, relative to projections, may be required to go to schools and other statutory and budgetary commitments, such as the state’s rainy-day fund and debt payments,’ Sisney said. As a result, ‘The amount of extra state money available for other purposes could be little or nothing, and in some scenarios, reducing non-school spending on programs could be required.’”

Tax watchers, the Chronicle noted, paid special attention to a surge in taxes amassed through payroll withholding. In a report cited by the Chronicle, Standard & Poor’s called the increase “a sign that California’s economy is firing on all cylinders.” But that interpretation did not extend to the Golden State’s self-employed economy, since entrepreneurial taxpayers don’t have their taxes withheld in advance by an employer.

New hikes foreseen

Despite the influx of revenue, legislators have not been satisfied with tax rates. Assembly Bill 464, introduced by Assemblyman Kevin Mullin, D-South San Francisco, “would give local governments the power to add another 1 percent to the combined state-local sales tax rate with voter approval,” the Bee reported.

Senate Bill 16, meanwhile, introduced by state Sen. Jim Beall, D-San Jose, would hike several of California’s car-related taxes and fees. “The measure would increase the state gasoline tax by 10 cents per gallon, raise the state vehicle annual registration fee by $35, and levy a $100 per year surcharge on zero-emission vehicles that don’t use gasoline,” The Bond Buyer noted. “Beall’s plan also would phase in a 3.5 percent increase in state vehicle license fees over five years.”

On at least one issue where elected officials remain divided, the prospect of higher taxes has deepened. Although the push to legalize marijuana in California would presumably bring more tax revenue to Sacramento, Colorado’s uneven experience with the process has led to increasing reticence among Californians who don’t want to struggle with similar problems. As CalWatchdog noted previously, Coloradan legislators have divided over what to do with the excess tax revenue.

Up in smoke

marijuana-leafThe indirect tax consequences of legal marijuana could also mount. At a recent panel convened by the Northern Californian chapter of the ACLU, “Paul Gallegos, a former district attorney in the marijuana-growing heartland of Humboldt County, noted that a pot plant needs 6 gallons of water each day over its 150-day growing cycle,” according to ABC News. Amid California’s protracted drought, water rates and rationing penalties could be dramatically effected.

Finally, more comfortable on more familiar ground, some legislators have re-trained their attention on increasing taxes on tobacco products. State Sen. Richard Pan, D-San Francisco, “wants to raise California’s tobacco tax by $2 a pack, to bring in $1.5 billion a year for smoking prevention and smoking-related medical costs now borne by taxpayers through Medi-Cal, the state’s healthcare program for the poor,” the Los Angeles Times reported.

Originally published by CalWatchdog.com