State income taxes may go down in new year

December 15, 2010 8:23:03 PM PST
There is a good chance that your state income taxes will go down in the New Year. It's a key component of a budget deal in Sacramento, but critics believe that putting a fistful of dollars into individual pockets, isn't worth what it will cost California's government.

For workers in California, the expiration of the .25 percent tax hike on state income taxes means their paychecks will be slightly bigger starting next month and for those with kids, they'll be able to take advantage of a bigger dependent credit. All that means is a little more money in the wallets of 11 million taxpayers in California.

"It's a little extra treat, a couple of extra movies, dinner out. Something like that, something nice," says Jennifer Dietrich, a taxpayer.

For a single person, making $100,000 without dependents, his or her tax liability will fall $241. For a married couple making the same and filing jointly, with two kids, they save even more -- $647. That equates to $3 billion less for state coffers.

With California so broke, facing a projected $28 billion deficit over 18 months, it may be surprising that taxes are being cut, but that was the deal that was brokered between Gov. Arnold Schwarzenegger and lawmakers in early 2009.

"These taxes were going to be temporary in nature and based on what happened last year, they were scheduled to go off the books at the end of 2010," says H.D. Palmer from California's Finance Department.

That's not all. The higher sales tax and vehicle license fee expires in June. With all this money going away, there's speculation Governor-elect Jerry Brown will call special election to extend those temporary taxes for a longer period to stave off more major budget cuts.

"We have to present to the people an opportunity to mitigate those cuts," says St. Sen. Darrell Steinberg, D-Sacramento.

But leaders might try a different tactic this time -- specific tax increases for specific expenses. That would convince single mother Michelle Dunn to vote for them if the money went towards education.

"I'd rather it go there than anywhere because my kids need an education, and you should see the schools. They're terrible right now," says Dunn.

California voters have already rejected extending those temporary taxes once before. It's hard to gage where voters' mindset will be next Spring, if in fact, a special election is called.


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