Tax Trouble in California
On November 27, the New York Times <a href="http://www.nytimes.com/2009/11/28/us/28brfs-GOVERNOROWES_BRF.html">reported</a> that Governor Schwarzenegger may owe nearly $80,000 in taxes to the state. If true, this is not a good position to be in for the chief executive of a state that is assuredly bankrupt.
According to multi-year tax liens, Schwarzenegger owes $40,016 in back taxes from 2005 and $39,047 from 2004, totaling just over $79,000. It is believed that the documents detailing Schwarzenegger alleged I.R.S. errors were filed in spring at the Los Angeles County Superior Court.
This is what is known as a lien. The 1988 California Taxpayers’ Bill of Rights defines a lien as “a public notice of debt. It attaches to your property and your rights to property. Once a tax lien is filed, it becomes a matter of public record and may harm your credit rating.” Good thing credit rating has nothing to do with being governor. A former Hollywood star, Schwarzenegger lives in Los Angeles County when he is not in his office in Sacramento. The governor’s office reportedly denies the existence of unpaid taxes, and explained the situation as a simple misunderstanding, or possible lack of correctly inputted information. Either way, it isn’t pretty for the governor.
There are two glaring problems with the tax system in California (not to mention the nationwide tax system):
Taxes are too high (we can tell this is the case when even millionaires like Nicholas Cage <a href="http://www.signonsandiego.com/news/2009/nov/27/actor-edge-nicolas-cage/">can’t pay them</a
The tax code is simply too complex
Going through the taxation guide (whether you are paying individual income taxes or filing for a business) is a joke:
If you own and operate a business in California, you must be highly profitable or have an exceedingly compelling reason to stay: businesses can expect to pay at least 8.84 percent of their gains to the government, flat. Banks and financial entities are expected to pay at least 10.84 percent in taxes, while the maximum rate for individuals is 9.55 percent or 7.25 percent AMT.
The Tax Foundation ranked California 48<sup>th</sup> out of 50 possible spots, for the state’s 2010 business taxation climate. There are enough obscure and minute regulations in the federal and state tax code to make any logical person’s head spin. One IRS tax guide is over 50 pages long, while the 1988 California Taxpayers’ Bill of Rights is only two pages long. Are we missing something here?
Simplify the tax code. Don’t tax businesses until their pockets are empty. Don’t tax unprofitable businesses. Encourage businesses to hook up to receive private and governmentally-arranged contracts, and every time they deliver by or before the specified completion date, incentivize them to do it again by offering financial incentives and lowered taxation rates. Retain some form of legislature oversight, by which lawmakers will not be allowed to continue to be criminally negligent with our money, so that their pet projects may be funded. You want to champion a project and no one else does? Great, go fund it, but don’t demand everyone else support it, too.
When the governor of a state can’t even file his taxes properly, something is rotten in the state of Denmark: we need to realize that not everything can be fixed by taxing the assumed “rich” to give to the “poor” aka those things our legislative members decide would be cool to fund.
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