Income Taxation In California

Second quarter income tax estimates are due Monday, though the amount required in California is more than a quarter’s worth of estimated tax. That’s because during a past budget crisis the state imposed a requirement that taxpayers pay more than a quarter’s worth of estimated taxes for each of the first two quarters of the year. That budget crisis went away, but not the imposition on taxpayers. That’s because once something in government is set in stone, it stays in stone unless chiseled away by political forces more powerful than those that benefit from the status quo.

The same principle explains why governments often perpetuate inefficiencies that could never endure in a competitive marketplace. Eg, California provides anachronistic health insurance subsidies to retired employees that drain billions every year from the budget. That’s because Governor Newsom and legislative leaders are too afraid to ask public sector unions to chisel away at that stone. Politically it’s easier for them to address a deficit by cutting programs, borrowing money and raiding reserves. A different principle — mutual back scratching — explains why California also pays wildly-above-other-states salaries to Corrections employees. That’s because governors like Newsom and Gray Davis curried the favor of Corrections unions in pursuit of contributions towards elections, ballot measures and, in Newsom’s case, national ads to boost his presidential prospects.

The consequences of these practices ultimately fall on taxpayers, especially on the small number of high-income taxpayers who provide the lion’s share of the state’s tax revenue. To add insult to their injury, two years ago the Governor and Legislature issued a tax refund — though not to the taxpayers who provide most of the tax revenue — with funds that could sorely be used now. With governments, the only forces that matter are political. Individual income taxpayers will always be on the menu in California, and for protection they must marshal persistent political forces powerful enough to keep a seat at the table. Your support of GFC is helpful towards that end, as is the support of other political organizations focused on fiscal matters.