Unhitch the Tax Hikes

“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.