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If You Thought "Taxation Without Representation" Was Bad...

...just try "income tax without income."

Just how bad is the California state budget? According to Doug Ross, they're taxing people on income they have yet to receive.

Last year, to balance its books, California paid a bunch of people not in money, but IOUs that the state would make good at some vague, undefined date. (It hasn't arrived yet.) But the state still needs money, so it's demanding that the recipients pay income taxes on the money they're owed -- and, in some cases, fines for not paying it sooner.

Personally, I'd be tempted to make a photocopy of the IOU and send that to the California revenuers, with instructions to tear off and redeem 10% or whatever the effective tax rate would be.

This is so twisted, it can only have been conceived by a lawyer. "Yes, you didn't actually get income, but you were granted something of value. That you can't do anything with it other than wait for the state to make it good is irrelevant; you were given something of value, so you have to pay taxes on it. And no, you can't pay with another IOU, and no, we won't just deduct it from what we owe you -- you have to pay us in real cash."

This is beyond corrupt. This is downright insane. The state is, in essence, telling people that instead of being paid for work done on behalf of the state, they have to pay for the privilege. Simply being told that they are working for free, the state is actually demanding money from them.

There is currently a hotly-contested race to succeed Arnold Schwarzenegger as governor of California. After the winnowing of the primary, it's pretty much down to Democrat Jerry Brown and Republican Meg Whitman.

Given the current state of the state, one has to wonder why in hell anyone would want to be in charge.


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Comments (19)

Shhh!!! Dont give Barry any... (Below threshold)

Shhh!!! Dont give Barry any ideas.

Reminds me of when I was de... (Below threshold)
retired military:

Reminds me of when I was delivering pizzas part time. We had one customer who got a pizza so late that they gave her a coupon for a free pizza.

She ordered another pizza that showed up late and not only paid for it with the coupon for the free pizza but demanded a refund becuase the 2nd pizza was late even though it was free.

I'm sure they'll tax them a... (Below threshold)

I'm sure they'll tax them again whenever(if) they receive the actual money too.

Cool new idea: collect sale... (Below threshold)
George Orwell:

Cool new idea: collect sales tax before sales! Just estimate what a Clownifornia resident will spend over the year on taxable items and send him a bill. Promise to refund the sales tax you pay twice when you get around to actually buying stuff. Take a couple of years to get around to it and poof... no more budget crisis!

Oh what the heck... just withhold 100% of everyone's income and be done with it. North Korea is Sacramento's model for Clownifornia's future.

"Given the current state of... (Below threshold)

"Given the current state of the state, one has to wonder why in hell anyone would want to be in charge."

Well someone has to be there to turn out the lights when we finally go bankrupt.

Almost 2 months late now on a new budget. But they do have time to debate a new law - punishing gate crashers at the Oscars with a $1k fine.


It ain't right, but it perv... (Below threshold)

It ain't right, but it perversely is consistent with tax law. Under an accrual system, tax is due on the recognition of income, not the actual receipt of the money (if the money is never received, the taxpayer gets a bad debt deduction in a later period).. so if a taxpayer is on the accrual system, they owe tax on these IOUs, just as they would owe on money due from their other, non-state of California customers.

"Given the current state of... (Below threshold)

"Given the current state of the state, one has to wonder why in hell anyone would want to be in charge."

Or live there?

And here I thought... (Below threshold)

And here I thought New York was bad.


Individuals don't use accru... (Below threshold)

Individuals don't use accrual accounting. Duh. It's not payment until it's cash, unless it's to a business that DOES use accrual, in which case it's rude but not really something they aren't used to.

Individuals don't usually u... (Below threshold)

Individuals don't usually use accrual accounting but they can.

You can't postpone income i... (Below threshold)

You can't postpone income into another year by holding your paycheck until New Year's Day. But if the check isn't any good (that is, it CAN'T BE CASHED), how can the government claim you have received your pay??? I don't think anybody ever confused Arnold with a CPA, but this is pure crap. If I were a resident of Ca-lee-forn-ya, I'd be mad as hell.

On the other hand, I'm sitting here in Illinois, which is at least $13 billion in debt for the current fiscal year, reading in Bloomberg News: "Illinois, with an unfunded pension and health care liability currently at $54 billion, is the worst of any state..." And a Chicago jury sits on its hands awaiting a mistrial for one of the prime movers who got Illinois where it is.

The feds are broke, the states are broke and there is no hope in sight from BO, Arnold, Rod or the other politicians who got us where we are.

What will the state do when... (Below threshold)

What will the state do when vendors simply refuse to provide services? That's what usually happens when you don't get paid for prior services.

This is not the only outrag... (Below threshold)

This is not the only outrage by California, by far. When you file estimated taxes in California, you have to pay 30 % in April and 30 % in June. So you end of paying 60 % of your estimated taxes by the time 45 % of the year is up. And if you happen to make more money than expected late in the year, well there will be a big penalty.

Straight up theff.

The sooner we sell Californ... (Below threshold)
John S:

The sooner we sell California to China the better. Now watch the dumb shits elect Jerry Brown as governor

"Straight up theft."<... (Below threshold)

"Straight up theft."

This state has had tremendous bursts of income over the last 15-20 years. And each time, the Dimwits in Sacramento found new ways to spend the money, as if it was going to continue forever. "Saving for a rainy day" is not a concept they are familiar with. Every time a downturn comes, first words out of their mouths are about layoffs of teachers, firefighters and cops. NO MENTION of their pet programs.

RE: the accrual, etc. comme... (Below threshold)

RE: the accrual, etc. comments.

The IOU's are going to businesses/vendors. Some are large and small corporations, some are small family or individual-owned businesses. They are all in business. I don't know what the story is in CA, but I would suspect they are not REQUIRED to use accrual accounting. Maybe they are (it sounds like something stupid Sacramento would come up with).

It would seem entirely appropriate for the State to allow folks with IOU's from the State to use a portion of the IOU's to pay bills back to the State. Unless they are operating like organized crime. No I take that back, the Mafia doesn't even operate that way! They are SMART criminals, not stupid ones like the cabal in Sacramento.

I say just pay with cash. I... (Below threshold)

I say just pay with cash. It won't be worth anything soon anyways.

What a state. These people ... (Below threshold)

What a state. These people piss away money like it was last nights Shinerbock.

I just drove back home to Eastern WA (DON'T confuse us with Seattle. Think Montana and North Idaho) with a car purchased in San Jose. On every road construction project where flagers were used they had TWO at each end of the project. One to warn you about the other. Now out here in the sticks we use ONE at each end with a sign telling you to look out for a flager. Hell, near our ranch last year the state was doing a bit of chip sealing and had NOOOO flager. Just a sign to tell you to slow the hell down. Are people DUMBER down there and thus need a sign, then a flager, then ANOTHER flager to control traffic? WTF???

Oh wait.......UNION jobs. I shoulda known. The CA dumbasses deserve what they get.

I can't grasp how the state... (Below threshold)
Jim Addison:

I can't grasp how the state can insist the IOUs are income on the one hand but not valid tender in payment of taxes to the issuer.

I suspect the vendors tolerate this, and wouldn't cut California off until it formally files bankruptcy, because the state contracts are lucrative morsels with plenty of cushion built in.






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