State of California Approves Tax Increase to Overcome Budget Deficit

A California tax increase has been approved as new budget bill passes through state Senate. The California tax hike is part of a California Senate plan to not only cut costs for the state of, but increase revenues. The problem has been that California was looking at a huge shortfall in their upcoming budget years, and with several ideas already put in place, the next logical step according to California law-makers was a tax increase to work at covering the California budget deficit.

The move by law-makers to increase California taxes is not going to be well-accepted, as there has been a steady move of residents getting frustrated with Government over-spending in the state. Governor Arnold Schwarzenegger recently instituted required furloughs for state employees for two Friday's out of every month, taking hours away from many people, and now he is going to help tax them even more. According to Bloomberg news, the California state budget was looking at a record $42 billion shortfall, and that it could have crippled the state if it wasn't addressed quickly.

The approval of the tax increases means that the Senate is approving as much as $13 billion of additional taxes that would turn into revenues for the state. Amongst the tax increases is the slightly good news that their will be no increase in the gas tax, so at least gas taxes won't be going up again. The package does include a personal income tax rate increase of 0.25 percentage points, which may not sound like a lot, but could quickly add up to a lot of additional bills for residents in the state.

These tax increases for California residents are something that could have been seen coming, as with a budget deficit as large as the one that California had created it meant that a lot would have to be done in order to increase the state revenues. It is a bit surprising that the gas tax increase wasn't included, because it seems like a good way to recoup a lot of money quickly, but instead of doing that, they raised licensing fees, sales tax, and income tax rates instead. The scary thought for California consumers is that with the gas tax being tabled, it doesn't mean that it won't reappear at a later date as just another way for the state to bring in additional revenues.

The summation of the California state Senate bill shows that the increases of each tax rate will be an increase of 1% for the state sales tax, 1.15% for vehicle licensing fees, and 0.25 of a percentage point on personal income taxes.

Sources: Bloomberg and LA Times