We’re not advocating this, of course. Yet, this pickaxe approach to state finances isn’t a liberal think tank’s fantasy. It’s happening in California.
A Wall Street Journal editorial cites the gold crush that started Nov. 1 in which withholding for state income taxes was upped by 10 percent. California officials can’t know if citizens will owe as much in taxes as the withholding would indicate. But it’s not about matching current withholding to future obligations. It’s about panning for money to close a budget gap.
Never mind that California may have to return most of the extra withholding. That’s an assay for another day.
California also increased its top income tax rate to 10.55 percent. Despite that, income tax collections are $1 billion below projections. Oklahoma dropped its top rate over the past few years from 6.65 percent to 5.5 percent. Blaming the cuts for the state’s current fiscal challenges is fool’s gold.
From the California example, it appears Oklahoma could have raised income taxes significantly and still be experiencing a mother lode of a money crisis. Additional money from tax increases always gets appropriated. When the economy softens, collections fall — whether taxes have been cut, raised or kept the same — and states must dig deeper to find the right savings seam.
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