The new year is set to bring some financial cheer to roughly 11 million Californians in the form of lower state income taxes and fatter paychecks, but some in Sacramento are considering ways to roll back the tax relief, calling it unaffordable for a state staring at a $28-billion deficit.
Legislators and Gov. Arnold Schwarzenegger enacted short-term tax hikes on income, sales and vehicles as California struggled to pay its bills in early 2009. The income taxes will be the first to expire, on Jan. 1. The others come off the books at the end of June.
Parents, and those with dependents, would reap the biggest rewards: roughly $210 in credits per dependent will be restored. A single taxpayer earning $40,000 will owe $91 less in state income taxes in 2011 than in 2010 — amounting to about two gourmet cafe lattes a month.
"$100 a year won’t really do much,” said Natalie Strickler, 36, a nonprofit manager. “But I guess it’s better than them taking it away.”
A married couple with two children earning $100,000, would save $647 in 2011.
Daniel Tahara, a spokesman for the state Franchise Tax Board, said anyone with annual wages above $12,000 “will see a slight increase in their paycheck next month” because of the expiring tax hikes.
But the bump could be short-lived.
Some Democratic legislators would like to extend the temporary taxes to help balance the budget. Gov.-elect Jerry Brown is readying a budget plan that would call for a special election to ask voters to extend the soon-to-expire tax hikes, according to people involved in the discussions.
“I have a hard time seeing that they let go of this revenue,” said Esmael Adibi, director of Anderson Center for Economic Research at Chapman University.
In 2009, lawmakers also raised the vehicle license fee from .65% to 1.15% of a car’s value and hiked the state sales tax rate by 1 percentage point.
If all the taxes were extended through the next budget, the state Department of Finance says California would continue to collect $9.4 billion — nearly enough to cover the annual spending on the University of California, California State University and community college systems combined.
Deep cuts to state programs are expected regardless, but without the expiring revenues, the cutbacks would be far more severe.
That concerns state Sen. Mark Leno, a San Francisco Democrat and chairman of the Senate Budget Committee.
“If we continue to chip away at our public education systems, access to, and quality of our higher education system, to our healthcare and social service systems, we will be sacrificing that which made California great,” Leno said.
California Republicans were routed in the November elections, losing every statewide post. But California Republican Party Chairman Ron Nehring said the GOP is in a “strong position” to fight any attempts to extend the tax hikes at the ballot.
“I don’t think voters are in any mood to impose taxes on anybody,” Nehring said.
Annie Shirinian, a marketing and production manager who lives in Brentwood, is among those looking forward to her share of lowered state income taxes.
“Everybody likes money so everybody would want their money back,” she said. “I’ve always lived in California. I know we pay a lot in taxes,” she said as she walked her dog in Santa Monica. “It sucks but you get used to it.”
Meanwhile, many paychecks also are getting a small boost from the federal government. Congress and President Obama recently lowered workers’ share of Social Security costs in 2011 by 2 percentage points, from 6.2% to 4.2% of gross pay up to $106,800. Some low-income earners, however, will be worse off because an expiring tax break from the stimulus package is worth more to them.