| If you're a Californian who has state taxes withheld from your paycheck, the first check you receive after today will have less money in it. The state isn't calling it a new tax, but it's sure going to feel like that: an additional 10% of state income taxes will be withheld. Theoretically, you'll get the money back next year. The idea is that the state of California is taking a forced loan of $1.7 billion (with a "b") from the state's taxpayers. The state says that when you file your taxes next year for this year, you'll get the excess paid either in the form of an increased refund (if you're owed one) or the ability to pay less than you supposedly owe. In reality, though, this is in addition to the .25% increase to all California state tax rates enacted back in February, and they're not going to be able to live without the additional income. Therefore, my guess is that you'll get your 2009 money back, but they'll continue to take it out of your check in 2010, and then give that back to you in 2011 and so forth. This is a small amount of money, running generally from $12 to $40/month per wage earner. Still, it can easily affect spending. Assuming it's margin money, it's a chunk out of holiday spending or a dinner out. If you're already strapped, it makes you closer to lining up your monthly bills and saying "eenie, meenie, miney, moe" as you pick which bill won't get paid. There is a risky way to avoid having the excess taken out of your paycheck. In actuality, it's risky for some, and a smart move for others. If you owe taxes every year - it's risky - DON'T DO IT. However, if you're one of those people who gets a tax refund every year (especially if you don't itemize) you have already been giving an interest-free loan to the government at all levels. Therefore, if you increase your deductions on a W-4, you'll have less tax money taken out by the Feds AND the state. You won't get money back next year, in fact, because of the way the rates work, you'll likely owe about $150 - $250 dollars, but you'll see the additional dollars now. So, it's a good idea if you want to put the money in your emergency savings account, but a bad idea if you need the extra tax money to live on. Expect to see more of these creative tax systems in the future, not just in California, but in other states with financial issues. This creativity reminds me of the handbag story. I was shopping with a friend and her two sisters. The sisters are BIG FANS of a certain brand of very expensive handbags. The brand was on sale for 50% off, meaning they cost about $400 - $800 EACH. The end of the season ones had clearance prices. (Don't get me started.) One of the sisters decided to buy a $1600 handbag for $300. She said that this was a savings of $1300, and she could (I kid you not, she actually said this) "really use the $1300." I wanted to explain that she didn't GET $1300, she was still spending $300 ON A PURSE. Plus, she was going to have to charge it, so there would be interest charges. I found, however, that I was truly speechless. She attributed my facial expression to confusion on my part and explained that the $1300 would become part of her assets, thus offsetting other liabilities she had. And honest, while the specifics are different, the idea that "fake" money is the same as "real" money is specious, at best. California will be in the hole until the state can find a way to either spend much less, raise much more in taxes, or a combination of both. If the state doesn't really give the money back next April AND stop taking the money ahead of time, it's actually a tax increase, however couched. The economists will tell you that I don't know what I'm talking about because I don't truly understand the difference between cash and accrual systems, but I understand that either you actually have dollars, or you don't. |
