Ocotber 10, 2008
California's legislative Democrats have unveiled a new budget proposal: a tax swap in which state income taxes would go up (along with vehicle license fees) and sales taxes would be cut.
The goal? Get more money for the state via federal tax rules. By deducting the higher state income taxes on their returns, Californians -- according to the Democrats -- would get back from Uncle Sam the additional money they send to Sacramento.
The plan is being discussed as the political document it is, and judged on whether it advances budget negotiations. But it also raises all sorts of important questions, three of which we don't know the answer to.
1. Will California taxpayers really be able to recover from the feds the additional money they pay? Only 40 percent of Californians file itemized returns, and getting the money back would require itemized returns.
2. Would a cut in the state sales tax -- from 6 to 3.5 percent -- provide a boost to the economy?
3. How much would the income tax increase -- 1 percent -- hurt the economy, if at all?