Is California going bust?

Mebbe. But I\’m not sure I buy this argument as to why:

California’s biggest problem is the precipitous decline in tax revenues over the past year. The state’s property taxes — the equivalent of Britain’s council taxes — are based on the value of a house when it was first bought, and can then rise by no more than 2 per cent a year. This means that by far the most tax revenues come from new property sales, and these have all but dried up.Tax revenues have also been hit by the global recession. and credit crunch.

For, you see, property tasxes don\’t make up part of the budget of the State.

Prior to 1912, the state derived up to 70 percent of its revenue from property taxes. The state no longer relies on property taxes as its primary source of funds—since 1933, the only property tax directly levied, collected, and retained by the state has been the tax on privately owned railroad cars. Currently, the state’s principal revenue sources are personal income taxes, sales and use taxes, bank and corporation taxes, and a series of excise taxes. The State Board of Equalization administers sales and use taxes and excise taxes, while the Franchise Tax Board administers the personal income and bank and corporation taxes. Today, it is California’s counties, cities, schools, and special districts that depend on the property tax as a primary source of revenue. The property tax raised more than $31.8 billion for local government during 2003-04. These funds were allocated as follows: counties 18 percent, cities 11 percent, schools (school districts and community colleges) 53 percent, and special districts 18 percent.

If it were the counties and the municipalities going bust, then yes….

One comment on “Is California going bust?

  1. Correct. All property taxes go to local governments, not to the state. The big problem in CA is the steeply progressive income tax. When the ‘rich’, who pay about 40% of the state income tax, have a ‘setback’, like in the current crunch, state tax revenues go down much faster than incomes do. (Plus, of course, spending always increases during the booms, as though the good times will never end).

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