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State of Calif. Starts Taking More From Your Paycheck

Audio

Aired 11/6/09

Most workers in California will see a decrease in their next paycheck. The state will add 10 percent to what it already takes from taxpayers in an effort to balance the budget. How will the additional state tax withholdings affect California workers? And, what does this story tell us about the state budget prospects for next year?

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Above: California lawmakers recently approved a 10 percent increase to state taxpayers' withholdings.

GLORIA PENNER (Host): Our paychecks are about to get smaller even if our salaries haven’t been cut, even if our work hours haven’t been reduced or our taxes raised. But those missing dollars will end up in California’s coffers. It’s a boost in withholding. So, Tom, first of all, how much of a pinch are we going to feel?

TOM YORK (Contributing Editor, San Diego Business Journal): Well, it’s going to be 10% more withholding on your state taxes. So it’s a very small amount relatively speaking, although when you add it up it amounts to more than a billion dollars a year for the state coffers. But to – it doesn’t mean you are actually going to be paying more taxes ultimately because if you file your, you know, tax returns, you get a refund, you’ll get that back. But for right now, you’re going to be paying – I think one number I saw, if you’re making $50,000 a year and you’re single, you’ll be paying an extra $4.00 per pay period.

PENNER: A pay period, that’s a two-week period or a one-month pay period?

YORK: I think it was a monthly pay period.

PENNER: A month period.

YORK: Yeah.

PENNER: So $4.00, that’s about $50 bucks a year.

YORK: Yeah.

PENNER: Okay. Now let me just pose this. John, I’m going to ask this of you. Here we have a recession and our retail industry is going downhill really fast. The latest reports are that maybe there’s an uptick but, you know, who knows? People are going to have $50.00 less to spend and we’re talking about, what, a single taxpayer…

JOHN WARREN (Editor/Publisher, San Diego Voice & Viewpoint): Umm-hmm.

PENNER: …earning what, $40-50,000?

WARREN: $50,000.

PENNER: $50,000. Going to have $50.00 less to spend. Isn’t this going to affect, number one, the retail industry and that will roll over into manufacturing, and won’t that also affect state revenues because there will be less sales taxes? Is this really a benefit?

WARREN: No, because what happens is that person earning $51,000, they’re actually going to lose seventeen – about $17.00 a month out of each pay. We’ve – already have a $1 billion shortfall in terms of revenues based on the economy, unemployment, wages and the whole bit. We’re not going to be able to start paying this money back or giving it back as we thought, so it might be IOUs going to people. Plus, we have a factor where we have people leaving the state of California now at the rate of 3200 a week, moving out of the state because of the taxes and all of the issues that are going on, making it cost prohibitive to be here. So I don’t see it getting any better. People are already saying you got furloughs in terms of days off, now you have this on top of the furloughs, and people are saying it’s not a question of we’re going to have money to shop for Christmas, it’s a question of are we going to have a place to live in terms of Christmas. And the utility is coming and the whole bit, so I don’t see it getting better.

PENNER: Let me throw out our number, 1-888-895-5727, 895-KPBS. Are you ready to see your paycheck shrink because that’s happening, I think, this month. It’s coming up. But is this really a workable strategy, Alan, for California to be able to collect more money earlier? I mean, couldn’t people easily circumvent this by adding to their withholding allowance on their withholding forms?

ALAN RAY (Senior Editor, KPBS): Oh, yeah, but how many people are going to do that?

PENNER: Well, I…

RAY: The real problem – I mean, when’s the last time you changed your withholding? Most people don’t do that unless they get married or unless somebody dies.

PENNER: But they could.

RAY: Or unless they have a baby. You could. The bigger – The issue I have with this is what happens when we get to April 15th? The state says it’s going to give this money back to us. What happens if the state’s another billion dollars or five billion dollars in the hole? Where’s that money going to come from to give it back to us? This is basically the state taking from you an interest free loan that it promises to give you back.

PENNER: And – But…

RAY: My question is, is that money going to be there when it’s time to give it back.

PENNER: Okay, it’s obviously not going to be a really popular thing. Was this an act by the legislature or unilaterally by the governor or what?

RAY: It’s a legislative action.

PENNER: It’s a legislative action. So from a political point of view, you wanted to say something about that?

YORK: Well, I was just going to say this was part of the effort to bridge a $48 billion deficit and it – you know, there were many pieces of this puzzle that were put together to bridge this gap and, you know, already the budget that was put together is falling apart. We’re already about a billion dollars short. So it calls into question whether or not this 10% increase in withholding is going to be a permanent thing or whether we’ll ever get it back, as I see it.

PENNER: Or whether they could, let’s say, in 2011 decide to withhold an extra 15%.

YORK: They could do whatever they want.

PENNER: They certainly can. And that’s the political question. Elected officials are usually so reluctant to approve an unpopular measure especially with elections coming up next year, so this sort of appeared. I didn’t hear much debate about it. What was going on there, John?

WARREN: Well, you know, I continue to say that people have the exact kind of government they deserve. And we reelected this legislature once before when we were in the middle of a budget crisis; here we go again. Same people in office, they’re going to come back again because of the way the system is set up. And we still are fighting in the state, ignoring the fact that the revenues are here. But those who have money, namely the conservative Republican element in the state, does not want to – they do not want to see a tax increase under any circumstances and so you have people who can afford to pay more who say I don’t want to, and people who can’t and need more and they’re saying, well, you do without rather than have others pay. And that’s what it boils down to between the two parties with those in office making decisions knowing they’re not going to be turned out.

PENNER: Well, one critic of California’s, they call it, high benefit-slash-high tax package government wonders if California will have learned its lesson from the budget problems it’s now experienced and will be forced to govern itself more competently. Do you expect the state to change its ways, Alan?

RAY: When pigs fly. Yeah.

PENNER: When pigs fly?

RAY: Yeah. Pretty much. I haven’t seen that happen. I don’t expect I will.

PENNER: Okay, thank you. Well, let’s hear what Arlene in Mission Hills has to say. Arlene, you’re on with the editors.

ARLENE (Caller, Mission Hills): Yes, Gloria, thank you.

PENNER: You’re welcome.

ARLENE: I was astounded when I saw people being interviewed on television about this 10% that’s going to be deducted from their paychecks and, supposedly, they’re going to get it back, and they were just outraged. And then they did an interview with a state employee who’s going to the Food Bank to get food. State employees have been forced to take furlough days. We’re all suffering from that, and they’re not going to get that money back.

PENNER: Okay.

ARLENE: That’s a 15% tax on a special group of people.

PENNER: Right. Thank you so much, Arlene. Tom York.

YORK: It’s not a 10% increase or, you know, your paycheck is not going to be 10% less than it was last week. It’s going to be only a 10% increase on the withholding for state taxes, and it’s a very small amount but it does add up over a year.

PENNER: But, Tom, there are other changes, too. For example, there’ll be a – there is going to be a small tax hike of .25%, correct?

YORK: Right.

PENNER: Okay. And then the tax brackets are going to kick in at lower levels because of price deflation. So, in other words, you’ll be in a higher tax bracket sooner than you expected if you’re earning anything. And then there’s the lowered dependent exemption credit. So, you know, little by little, it’s being nibbled away at your paycheck.

YORK: Right. I see this differently than a Republican/Democrat issue or a business versus the proletariat issue. I see as a – as the state legislature protecting its own, protecting the bureaucracy, protecting, you know, the vested interest that runs Sacramento. And they’re going to great lengths to protect that to make sure that the bureaucracy stays in place. And I think that we’re coming to the point where it’s – we’re going to be truly in a crisis because there’s going to be another deficit and another deficit as long as this economy continues to bump along the bottom.

PENNER: We have time for another call, and this one is from William in San Diego. William, you’re on with the editors.

WILLIAM (Caller, San Diego): Good morning. Thank you. This is appalling once more. The state is – I’d like to have this made clear. Aren’t we one of the top three taxed states in the country already?

PENNER: Are you asking me? Okay, I’ll ask the editors. Are we one of the top three, John, do you know?

WARREN: I think we’re up there because the exit numbers that I mentioned earlier show that California leads all other states in terms of people moving out of state. And the states that have no or very low income tax are the ones experiencing the greatest influx in terms of residents. So that would support the caller.

WILLIAM: Is it also correct that our bureaucracy has doubled in size since the beginning of Gray Davis’ administration in terms of government workers in the state. Is that true or not true?

WARREN: I don’t know.

PENNER: Tom, do you know whether our bureaucracy has doubled in size since Gray Davis?

YORK: Well, that’s what Meg Whitman is claiming in her…

PENNER: Ah…

YORK: …campaign…

PENNER: …okay.

YORK: …literature.

PENNER: William, I’m going to have to let you go so if you’ve got any other points to make you’ll have to make them in the next ten seconds.

WILLIAM: Okay, thank you. Yeah, a billion – the interest on a billion dollars is moving money into the state. They don’t call it a tax but clearly they’re moving interest on a billion dollars into their coffers out of people’s pockets.

PENNER: Okay, thank you, William. Yes, we certainly agree with that, and the question is that if you overpay your taxes because of the extra withholding, you know, will you actually get it back? And Alan’s point was, well, it depends on whether there’s any money for you to get back or you’re going to have an IOU. Let’s have a final comment on all of this. In the middle of all this, I have to say the legislature for the first time in decades was able to pass a comprehensive water system package. I wonder whether you take that as a positive. Tom York?

YORK: Well, I think it is. I think water is the fundamental resource that we have in this state and unless we really bolster our state water system, you know, our economy could be in trouble down the line.

PENNER: John.

WARREN: I think it’s long overdue and I hope that it’s an incentive to do more to improve a critical area.

PENNER: Alan.

RAY: Unless it rains, I don’t think it’ll matter much.

PENNER: You don’t think so. No peripheral canal was passed.

RAY: Yeah, but there’s a problem with the delta. The delta is dying. The delta is almost a basket case now. And if we don’t find a way to solve that environmental problem – They’re raising rice in Sacramento.

PENNER: Yes.

RAY: Do you know how water intensive that is?

PENNER: Well, I – Just looking at your face, I know how intensive it is. And I thank you very much for being with us Alan Ray and John Warren and Tom York. Thanks to our callers and our listeners. Remember, KPBS.org/EditorsRoundtable to register your comment. This has been the Editors Roundtable on KPBS. I’m Gloria Penner.

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