California To Withhold Larger Portion Of Paychecks
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November 6, 2009 – California lawmakers recently approved a 10 percent increase to state taxpayers' withholdings.
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GLORIA PENNER (host): San Diego County taxpayers may soon see slightly smaller paychecks. In an effort to shrink the state's budget deficit, California lawmakers authorized a 10 per cent increase in taxes withheld from worker paychecks beginning November 1. This is not a tax increase. We asked San Diego Tax Fighter Richard Rider how this will impact local taxpayers. Here's what he had to say. RICHARD RIDER (Chairman, San Diego Tax Fighters): The impact is less than the discontent that it is generating. But the consequences are bigger than most people initially think. Here we're moving into a holiday period, the last thing people need is less money in their paychecks. The federal government is trying to increase stimulus, in California we're trying to pull money out of peoples paychecks. That's bad enough. But then you look next spring and summer when you expect to get the money back. What did the government do last summer. Well something they issued called IOUs. Taxpayers are expecting to get refund checks, they may be getting IOUs. Because they're not solving any problem in the meantime. The problem is still very real in terms of the spending problems of California. This shifts money but doesn't solve anything. It delays a solution. PENNER: Joining me now to discuss the increased withholding on state taxes are John Warren, editor and publisher of San Diego Voice and Viewpoint and Tom York, contributing editor to the San Diego Business Journal. I welcome you both gentlemen. But, before I get to your comments on Richard's statement. Let's look at how the increase in tax-witholdings will impact people. For a single tax-payer, earning $34,000 with one allowance expect about $8 less per month. For a married tax-payer earning $63,000 with two dependents, you need to expect a decrease in your paycheck of between $4 and $12 a month. So, with that behind us, let's start with Richard Rider's last comment. He said, basically, what does this 10 percent increase in witholdings solve. What does it solve, John Warren? JOHN WARREN (Editor, Voice and Viewpoints): Well, I guess it depends on who you talk to. If you're on the state side, you're saying it's helpful. But, at the same time that they're taking this money from individuals we see we already have a projected $1 billion deficit where we weren't expecting one. So, to the average tax-payer, the response is "It's not solving anything." PENNER: Do you agree with Richard Rider that it actually delays a solution to the state's budget problems. TOM YORK (Contributing editor, San Diego Business Journal): Well, the state had a situation where the state legislature had to come up with $48 billion in new revenue services. So this is just a small piece of that. It's a billion---almost--- close to $2 billion, but in a way it's just solving, it not solving our problem, it's just pushing it out into future years. PENNER: But meanwhile, it might be creating another problem, Tom. I mean, let's look at Richard's other concern. The less money in the paycheck means less spending which means less revenue to the state. So, was this a short-sighted decision? YORK: I'm not sure if it's short-sighted or not, but I think that the state legislature was in a desperate situation. They have to protect the interest of the state beaucracy, their own interests. They were looking for any source of revenue they could find. So they came up with this gimmick and it is a gimmick. And it's going to cost them down the road. They're going to have to come up with some way to make up for this. PENNER: A gimmick that penalizes people? WARREN: Well, I think the operative word here is acceptable. Because there were ways to raise this money. They could have had a tax increase even though there were people in this state that don't want an increase. But the decision was made to take from those who already need the help the most. So yes, I would call it a gimmick. It was suggested then that this problem would only push off the reality and the day of reckoning is coming now with greater intensity. PENNER: So now, the state gets to use whatever overpayment we make on our taxes and not pay us interest on basically what is a loan? How ethical is that? WARREN: Well, ethics never enters the picture when state government is functioning in terms of its own interests. Ethics only applies to others. PENNER: Only to others? Alright. Chances are more of us probably will get refunds after we file our taxes. If we're paying out more in witholding, chances are we're going to get refunds at the end. But, suppose the state runs out of money? Suppose there's no money to pay us what we should, what is rightfully ours. YORK: Right, well the extra money that's being taken out of our paychecks for state taxes or witholdings it's going to continue past the refund period. It's going to go on into end of the year and into next year. So it's really a sly way of increasing revenues to the state without getting into tax increases. PENNER: Do you think that there were other manipulations that we can expect? YORK: I think manipulation is the name of the game in Sacramento these days. PENNER: Yea, the name of the game, but in terms of something like this, these witholdings, could it become permanent? Or could we see that witholdings increase in 2011. WARREN: Well, it could. They didn't set a sunset on it. They just reserved the right to come in and change it, but let's remember that the witholdings are on top of the furloughs that people are already experiencing. So this represents an additional reduction in terms of the amount of money coming into the households. Let's remember that many state employees are paid on a monthly basis on top of that. What do we have? Two pay periods left? Or one pay period left in this year after this particular one with the holiday season? PENNER: That's right. WARREN: So, it becomes very serious when you look at it in that context.