California may pay taxpayer income tax refunds in April with IOUs

Discussion in 'Economics' started by ByLoSellHi, Jan 5, 2009.


    With no cash, California may just issue promises

    Sue Doyle, Staff Writer
    Updated: 01/02/2009 06:00:44 PM PST

    Californians planning to stuff their thinning wallets with money from 2008 state income tax returns could be disappointed.

    For the first time in 17 years, California finance officials warn they could pay taxpayer income tax refunds in April with IOUs. And don't get any ideas: Residents who owe tax cannot pay the state with IOUs.

    Though the plan sounds like a desperate move from a down-and-out Vegas high roller, it's actually one of the few alternatives remaining for the world's eighth-largest economy as it struggles to close an ever-growing budget gap - now estimated at nearly $15 billion for this fiscal year. If nothing's done, the gap could widen to $41.6 billion by July 2010.

    In the near term, the cash-strapped state could run out of money in 60 days unless Sacramento officials can agree on a budget plan.

    "They are still in discussion on how to tackle the budget problems," said Jacob Roper, California state controller spokesman. "The way to avert the cash problem is to solve the budget problems."

    In a letter Tuesday, state Controller John Chiang notified agencies that could be affected by the IOU payments. It could start in February with paychecks for the state's 1,700 elected officials and their staffs.

    Only once since the Great Depression has the state turned to such extremes. A budget standoff in July 1992 slammed the state into a cash shortage, and several thousand state employees were paid in IOUs until a plan was approved.

    At the time, thousands of residents were also mailed IOUs for tax refunds. However, fewer taxpayers were pinched by that budget fallout because it happened in July, months after the majority of residents file income taxes.

    On Friday, state Finance Director Mike Genest unveiled Gov. Arnold Schwarzenegger's 2009-10 budget. It involves $17.4 billion in spending cuts and $14.3 billion in tax increases. Schwarzenegger has already signed an order requiring 235,000 state employees to take two unpaid furlough days a month starting Feb. 1.

    Jerome Thompson, an office clerk in Canoga Park, said the state dips into his paycheck every two weeks, and that he's owed a portion of that money back in his annual tax refund.

    "If they give me an IOU, that's terrible," the 42-year-old said. "Where does all the money go?"

    If IOUs come into the plan, it's unknown now how they will work at financial institutions or whether residents can cash them like checks.

    Wells Fargo Bank has made no decisions yet about how to handle state IOUs, said spokeswoman Mary Trigg.

    "We're monitoring the situation closely," said Trigg. "We're aware of it."

    If IOUs are issued, they will earn an interest rate that could go up to 5 percent. But no rates have been determined at this time, Roper said.

    Just what these IOUs could look like remain to be seen. Roper said the agency is creating a design, but nothing has been printed because it's unclear whether the state will actually issue them.

    "We're still looking at other options to manage the cash flow," said Roper. "No decision has been made."

    Mustafa Mamujee, 38, of Canoga Park wondered how the state could have gotten to the point where it would have to issue IOUs to taxpayers.

    "It's not fair," he said. "Whatever we deserve, we should get it back."

    When asked if taxpayers who owe money to the state can pay their debt with IOUs, Roper said no. IOUs are registered warrants, issued on behalf of the state's treasury, and each has a promise to pay by a number on the check, Roper said.

    "I don't think there's any comparison there," he said.
  2. Daal


    Whats wrong with selling state owned land, forestry, etc?Oh I forgot, enviromentalists think animal life is more important than human life
  3. lrm21


    I think the concept of property rights is non-existent in CA. And is in the process of dissappering in the USA.

    Anyone who thinks otherwise is living in a fantasy land.
  4. That is so true.

    In order to close the budget gap, they want to raise sales taxes, income taxes, personal property taxes (on cars and boats), corporate income taxes, gasoline taxes, cigarette taxes, oil severance taxes, nickel a drink tax and a slew of other fee increases.

    The above sounds bad enough, but there are some liberal/socialist idiots trying to gather signatures for a ballot initiative to tax living people a one time inheritance tax.

    It would work like this:

    If you are single, you would be able to keep the first $10 million of your assets. Anything above that would be taxed at the Federal inheritance rate of 55%. This would be a one time tax on high wealth individuals.

    So if your net worth is $20mm, you get to keep the first $10mm and the second $10mm would be taxed at 55%. The state of California would take $5,500,000.00 as a one time tax.

    Talk about plain and outright theft!!!!

    It could only happen in the great Socialist Republic of Kalifornia.
  5. No, Oregon is considering tracking your car with GPS and mailing you a tax bill for miles driven since cars are getting better fuel economy and the state is now getting less gas tax revenue.

    Quite frankly things are out of hand. What's worse is once the economy improves and there is money again these increased taxes will not suset or go away, they will just be part of the rake of government until the next crisis. Might as well just hand over every cent to the government.
  6. I've been thinking for years we'd see 100% taxation in my lifetime.
    I'm 52, and we move towards that eventuality with every passing day.
  7. clacy


    Californians get crackpot liberal laws imposed because they vote in crackpot liberals.

    You have to raise taxes when you have budget deficits because you incentivise illegal immigration and homelessness.

    Fortunately California cannot print their own money, or it would be 10x worse.

    For now, we only have the feds with the hand on the printing press, which is California-lite
  8. Is that the Wealth Tax that was being pushed as a proposition a couple of years ago? I thought it would be an incentive for rich people to move out of state (talk about unintended consequences), but IIRC they also wanted to make it retroactive and cross-border. That is, you could move, but they would still come after you if you had any wealth in California in the prior X number of years.
  9. How is issuing IOU's not printing?
  10. How is this even possible? You can hide it all offshore and say it was spent. Or pay it to another one of your corporations for a "service" and keep the cash, just transfer where it is held. Wouldn't it also have to overcome the precendent of "grandfathering"?

    Either way, if you are holding that much cash in personal assets and don't have it protected through a corporation or trust that probably isn't too smart either from a personaly liability standpoint should you get sued.
    #10     Jan 5, 2009