California's Unemployment Fund has Deficit of $10.3 Billion

California businesses already pay some of the highest unemployment taxes in the country – and the tab is likely to increase.

The recession and the Legislature's decision years ago to raise benefits have drained the state unemployment insurance fund, which now has a estimated $10.3 billion deficit.

The nonpartisan Legislative Analyst's Office, in a recent report titled "California's Other Budget Deficit," said the state will probably need to raise unemployment taxes on employers as well as reduce benefits to bring the fund back in balance.

Raising the tax would require a two-thirds vote in both houses of the Legislature and might be politically impossible. Gov.-elect Jerry Brown has promised not to raise taxes without voter approval.

But pressure is growing on Sacramento to fix the system soon – whether it wants to or not. California has borrowed about $8.5 billion from the federal government to keep benefits flowing, and the repayment obligations are coming due.

"The longer we go without a fix, the bigger the hole becomes," said Loree Levy, a spokeswoman for the Employment Development Department, which doles out the benefits.

California State Budget Crunch Brings Back Furlough Fridays

The California Supreme Court agreed to allow furloughs to resume on Friday, until they have enough time to thoroughly review the case. The judges must decide whether or not Governor Arnold Schwarzenegger has the right to order unpaid days off for state workers.

News10.net reports:

150,000 state workers will take an unpaid day off Friday in an effort to curb the state's budget crisis. Furloughing state employees three days a month will save $150 million a month.

The California Supreme Court cleared the way for furloughs to resume Wednesday, saying furloughs can resume while it reviews whether the governor has the authority to mandate unpaid days off for state employees.

Gov. Arnold Schwarzenegger recently ordered workers to be furloughed three days a month, following a previous round that ended in June.

It's a move that has an impact on the private sector as well as state employees.

Read more here

California Exhausts $100 Million in Film Tax Credits for Year

Less than three months into the new fiscal year, my home state of California has reportedly already exhausted its entire $100 million film and television tax credit budget. They have provided credits to over 30 different projects already.

BusinessWeek.com reports:

Additional subsidies, designed to keep movie jobs in the state, won’t be available until July 2011, Amy Lemisch, executive director of the California Film Commission, said in an interview. About 45 productions are on a waiting list.

California is competing with states including New York, New Mexico and Louisiana that also offer incentives to attract movie and television production. California offered tax breaks for the first time in fiscal 2010. Demand increased with awareness of the program, Lemisch said.

New York offers $420 million a year in incentives, according to the website for the state’s Office for Motion Picture & Television Development.

The California incentives can cover 20 percent to 25 percent of a movie’s production budget, according to the California Film Commission website.

Read more here

Clothes Tax In State Budget Hurts Poor, But I Had To Do It, Gov. Paterson Says

The state of New York passed a new budget bill Tuesday night, containing a controversial sales tax on clothing. Governor Paterson himself admitted yesterday that the tax will hurt low-income citizens, but still had to be done. The tax goes into effect October 1^st.

"Begrudgingly, to get the budget done, we accepted the sales tax, but it's really going to hurt low-income people," he said.

The final budget bill, passed by the Senate Tuesday night after a long day of political horse-trading, calls for a 4% state sales tax on clothing and shoe purchases of $110 or less set to begin Oct. 1.

Controller Thomas DiNapoli, a Democrat, slammed the $136 billion spending plan as risky.

"All in all, this budget was not worth the wait," he said, noting it reeked of "dysfunction."

Nowhere was the dysfunction more apparent than in the Senate, where an upstate Democrat blocked completion of the budget for a month, with little to show for his efforts.

Continue reading at NY Daily News…

Medicaid Cut Places States in Budget Bind

At least 30 states are hoping Congress will pass a six-month extension on Medicaid because most were already counting on the federal money. The New York Times reported the Medicaid provision, which would extend assistance first granted in last year’s stimulus package, was considered such a sure bet by many governors and legislative leaders that they prematurely included the money in their budgeting. But under pressure from conservative Democrats to rein in deficit spending, House leaders in late May eliminated $24 billion in aid to states from the tax and jobs bill that I have been mentioning in my recent blog posts. See http://bit.ly/9ZFptV.

The good news is that the Senate plans to take up the measure this week, and the majority leader, Senator Harry Reid of Nevada, favors restoring the money. Nancy Pelosi, the House speaker, is also looking into reconsidering the appropriation of funds.

Read the full article from the New York Times here.

Californians Divided Over Paying Higher Taxes to Prevent Public Education Cuts

The Public Policy Institute of California conducted a poll earlier this week to gauge how taxpayers in the state felt about paying higher taxes to prevent major cuts to public education. According to the California Independent Voter Network although Californians are concerned about cuts to education, they remain wary of paying higher taxes to fund what is needed to prevent those cuts. Check out a section of their analysis of the pool below.

Californians today are more likely to believe that funding for their local schools is inadequate, and parents who send their children to public schools believe that the state budget cuts have had a big effect on their children's schools. Among ethnic groups, Blacks and Whites are far more likely to believe that the quality of education is a problem as compared to Asians and Hispanics. Blacks and Hispanics are much more likely than Whites to be worried about the quality of education.

Californians also want education to be protected from spending cuts and believe gubernatorial candidates’ positions on education are important. Despite this all of these concerns, Californians are split on whether to pay higher taxes to restore the cuts.

Here are some highlights from the poll:

62 percent believe there is not enough state funding going to their public schools, a 12 point increase since April 2009, while 26 percent believe there is just enough, 6 percent more than enough.

Continue reading at CAIVN.org…

2 Years After Tax Law, Michigan's Making Movies

In the two years since the State of Michigan offered the movie industry some of the largest tax incentives in history, over 80 film and television productions have taken place. The Associated Press examined how the state is adjusting to this new popular industry and its economic benefits.

Since the measure became law on April 7, 2008, 89 movie or TV productions have been completed. Hotels, caterers and others getting some spin-off business can't wait for the industry to expand.

But some lawmakers are questioning whether Michigan is getting its money's worth.

The tax credit program is projected to cost the state nearly $69 million for projects completed in 2009, not counting incentives given for permanent infrastructure projects, according to the Michigan Film Office. The potential annual bill is higher — more than $100 million — but some projects weren't finished and won't get the tax credits.

Continue reading at Google News…

California Lawmakers Approve Tax Breaks to Create Jobs

On Monday, lawmakers in California sent Governor Arnold Schwarzenegger two job creation bills. The first piece of legislation would extend the $10,000 homebuyer's tax credit through the end of while the second would provide tax break to the green-technology industry.

According to Business Week, the Senate and Assembly passed the bills with bipartisan support in hopes of promoting housing construction and making California more inviting to businesses involved in developing alternative energy.

"Today, the Legislature approved two important job creation measures that put Californians back to work," Assembly Speaker John Perez said in a statement after the votes were completed.

Passage of the legislation was intended to buy favor with Schwarzenegger in hopes that he would sign a budget bill Democrats sent to him earlier this month. That bill involves a complicated swap of the state sales tax on gasoline for a gasoline excise tax that would send more money to the cash-starved general fund.

The governor signed that bill late Monday and indicated he would sign the two tax-break bills later.

Continue reading at Business Week.com…

California's Tax Tactics Undermine Prosperity

From the San Francisco Gate:

California's bond rating is the country's lowest. The state faces near unprecedented unemployment and underemployment. State government and most counties face deficits for the foreseeable future. The solution to this predicament, some Sacramento politicians believe, is more taxes.

The underlying assumption of such an approach is that taxes don't have much impact on economic performance and that tax competition among states is irrelevant. But both matter a great deal and lie at the heart of why the state's economy is struggling.

The first faulty premise pervading Sacramento is that taxes don't influence economic decisions and performance. Volumes of research show how taxes change behavior and how they affect the economy.

When we tax something, we get less of it. In other words, much of the foundation for a prosperous society, like work effort, savings, investment and entrepreneurship, is influenced by taxes. Unfortunately, California has gone out of its way to tax these very things.

California imposes America's fourth-highest top marginal personal income tax rate, behind only Hawaii, Oregon and New Jersey. Progressivity of our personal income taxes is the nation's third steepest. That is, when Californians are successful and begin to earn more income, they face higher rates both absolutely and compared to other states.