California Giving "IOUs" to Tax Payers as Economy Worsens

The economy is reeling and everybody everywhere is hurting. It seems that not even states are immune to the economic pain. Evidence of this can be found by the state of California's announcement that they will be essentially giving many citizens an "IOU" by delaying payments on state tax refunds to individuals and business owners who overpaid for the tax year 2008 (source: news.yahoo.com).

Along with delayed tax refunds, California is also going to delay payment by thirty days to vendors who provide services and products to the state government and state checks to a million aged, blind and disabled Californians to cover rent and utilities bills. The drastic moves are in an effort to help stave off the ever growing problems of the cash crunched state (source: news.yahoo.com).

Because of the massive decline in housing, states like California that are dependent on property taxes and personal taxes have been hit especially hard in the recession. The steep slump in revenues for California is expected to worsen due to the current rise in unemployment and continued decline in home values. In fact, California's budget gap is projected to top $40 billion over its current and next fiscal year (source: news.yahoo.com).

The delayed payment plan comes just weeks after California Governor Arnold Schwarzenegger said that the state faced insolvency in the near future if the books could not be balanced. The Governor has recently backed some form of tax increases which has angered many of his Republican constituents but he is also pressing the Democrats to cut spending (source: news.yahoo.com). While the Governor seems to be in a no-win situation, all agree something needs to be done and done quickly. But is delaying the payments of tax returns right or even fair?

Many Californians were depending on getting their tax refunds in a timely fashion and will now be denied extra money that they would otherwise have. That money is money that could be used to help stimulate the hurting economy. Small business may feel the pinch too. If a small business owner is hanging on by a thread and does not receive his or her tax refund they may be forced to lay off works adding to the already grotesque unemployment numbers this country is currently facing.

I think it safe to assume that the great state of California is in great trouble. The efforts of the "IOUs" being issued to tax payers may help in the immediate future but will certainly hurt in the long run. It is not clear how California is going to get out of the current financial mess it is in, but two word come to mind that have been popular as of late. Can you say "government bailout?"