New taxes will take bite out of federal U.S. giveth, state will taketh away

That tax credit provided by the federal stimulus package may come just in time -- to pay for new levies imposed by the state of California.

A single person making less than $75,000 a year would take home an additional $400 per year under the federal plan passed by Congress, and a couple making less than $150,000 would get $800.

But under the new state budget that passed in Sacramento early Thursday, Californians would lose nearly all of that to higher income and sales taxes and vehicle license fees.

“What the federal government is giving, our California government taketh away,” said Eileen Brown, a manager for H&R; Block Inc.


A family of four earning $100,000 could see their annual sales taxes increase by about $350, their income tax by $220, and their vehicle license fees by $110, according to state estimates.

“It is more or less a wash,” said economist Esmael Adibi, director of Chapman University’s Anderson Center for Economic Research. “The credit will not do much for us in terms of stimulus, no question about it.”

The state increases will phase in between April 1 and May 19. The federal tax credits would begin in June.

The California Legislature passed the $12.8 billion in tax hikes to help close a $41-billion budget gap.


Even as the state moves to suspend its payment of income tax refunds, its taxpayers will be expected to bear an increase of 0.25 of a percentage point in state income tax rates, starting with the 2009 tax year, and a 1-percentage-point increase in the sales tax.

Automobile owners face a boost in vehicle license fees, which will increase from 0.65% of the value of the car or truck to 1.15%.

A proposed 12-cents-a-gallon surcharge on gasoline was eliminated in the final negotiations.

“States can’t print money,” said state Senate Democratic leader Darrell Steinberg (D-Sacramento). “We have to raise taxes to avoid cutting education, healthcare, transportation and other government programs by 30 to 40 billion dollars.


“The only way to get through this crisis responsibly is to balance the deep cuts we’re making with tax increases.”

Some of those will be deductible against federal income taxes. But Brown, of H&R; Block, said the savings probably wouldn’t be enough to offset the total cost of the state’s proposals.

Because all of the levies except the income tax are regressive -- meaning everyone pays the same rate no matter how much money they make -- those hikes will disproportionately affect lower-income earners.

“The irony is that the federal government recognizes the need to help working families in this crisis, but the state of California is still putting the weight of its bad decision-making on their backs,” said Greg Good, director of campaign communications for the Los Angeles Alliance for a New Economy, which promotes living wages for workers.


Stephen Levy, director and senior economist of the Center for Continuing Study of the California Economy in Palo Alto, said the tax hikes and vehicle registration fee increase may feel like a burden at first for the state’s neediest.

But in a larger sense, he said, the federal stimulus plan’s earmarks for Medicaid, unemployment benefits, food stamps and a home-buyer tax credit will ultimately outweigh the costs of California’s new levies by a wide margin.

According to the Washington-based Federal Funds Information for States, California is expected to receive $26 billion from the stimulus plan, including $11 billion in Medicaid funds.

“A lot of direct money is targeted at people hardest hit by the recession,” Levy said.


Still, that will be of little comfort to Californians not wealthy enough to brush off the tax hikes and not poor enough to qualify for assistance programs.

Store owner Navid Mahgerefteh said he earns less than $75,000 a year and calculated that he’d spend an additional $315 to re-register his Jeep Cherokee and BMW 528i.

What’s worse, he said, is the 1-cent-on-the-dollar hike in sales tax. Mahgerefteh owns a Super Discount World on the corner of West Martin Luther King Jr. Boulevard and South Figueroa Street, where he advertises his wares for 98 cents and up. He fears that the higher sales tax will keep customers away.

“If everything increases, less people buy from me,” said Mahgerefteh, whose sales have shrunk 40% since September. “I have a house. I have a car. I have to pay for it.”