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Unhitch the Tax Hikes

by Susannah Kopecky, published

"Of all the gin joints in all the towns, in all the world, she walks into mine."

When Rick utters these fateful worlds in "Casablanca," the audience understands it's more than just mere blind luck, mere fortune. Still, why him, and why then?

Equally confusing is why state and federal leaders would continue down the path more traveled, a path of tax hikes, up and up and up...

On the heels of the passage of a $789 billion federal package to "stimulate" the economy, tax talk is confusing, as best. While talk of increased federal taxes is swirling around, the Senate simultaneously voted to add a $70 billion "patch" for the deservedly-maligned AMT tax. That's right: tax hikes and tax "relief" all bundled into one. Shouldn't the one cancel the other out?

To refresh, the Alternative Minimum Tax aka AMT is a terrible blight for those stuck paying it, particularly for those who are not high income earners, but happen to live in states with high tax rates. The AMT is an extra tax, in addition to property and income taxes.

California is one of the most expensive states in the nation to live in. The AMT is a nearly 40-year-old tax, started with the intention of forcing the wealthiest earners to pay some form of tax (rather than allowing them to basically "opt out" of taxes via elaborate loopholes...or so goes the theory). With this "revolutionary" idea, born of the late 1960s and implemented in the early 1970s, came a price: leaders did not follow through with subsequent inflation adjustments. Accordingly, $100,000 just isn't as much as it once was, but in the eyes of the AMT tax, those earning roughly that much in California may be fair game for this extra tax. Various organizations, including the Heritage Foundation, have estimated that in the coming years, the AMT tax will affect millions of new taxpayers, creating somewhere between $2,000-$3,000 extra dollars in tax burdens per household.

Ironically, in the stimulus package, rather than abolishing the no-longer-useful AMT tax, elected officials refused to do away with the tax, but instead voted to spend $70 billion "fixing" what is broken. This price tag is slated to cover only the coming year.

Back home, leaders in the California Senate and Assembly have yet to agree on a plan of action, as the state stands face to face with a deficit of over $40 billion for the coming year. It is beginning to look like open season, as even the counties refuse to fall in line behind the do-no-harm-but-do-nothing legislature, as about 30 counties fell in lockstep behind San Diego and Sacramento counties last week in a lawsuit against the state government, in addition to various complaints over mandatory furloughs, which the governor's office responded to, citing the governor's ultimate authority "During a fiscal emergency, to order furloughs for all state employees."

By Tuesday, February 13, the State Senate and Assembly had agreed to vote on a budget proposal by the morning of Saturday, February 21. The suggested budget plans will reportedly involve nearly a 50-50 split of tax hikes and spending decreases, with just slightly more revenue projected to come from the spending cuts (about $14.4 billion to $15 billion). Some of the floated "temporary" tax ideas include a sales tax increase of 1% (you wanted to pay $10? Nope, it will be $11 now), a higher gas tax ($0.12 on the gallon, if the state officials get their way), various vehicle and licensing tax increases (just in case it wasn't expensive enough to drive legally in California), income tax increases and a decreased ability to count forms of deductions, and oh so much more! Some of the cuts will hit higher education (the excellent California State University and University of California systems will be punished by a projected 10% cut in funding, despite continuing to thrive), K-12 general education and state worker salaries, as state workers will be put on furlough 1-2 days per month (originally the executive order stipulated two days, but that figure may drop down to one day per month, per union negotiations).

The governor has even resorted to increasing the size of government to reign in the fiscal irresponsibility, in the creation of the Commission on the 21 Century Economy. On February 11, Governor Schwarzenegger issued Executive Order S-01-09, which establishes the commission, which "shall consist of fourteen members, seven of whom shall be appointed by the Governor, three of whom shall be appointed by the Speaker of the Assembly, three of whom shall be appointed by the Senate President pro Tem, and one of whom shall be appointed jointly by the Speaker of the Assembly and the Senate President pro Tem... The members of the Commission shall serve without compensation and at the pleasure of the official who appointed them."

It is hard to imagine that one more commission will solve the longstanding gridlock of the California officials.

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