A Taxing Week in Southern California

The Daily News reports on consumers pre-reaction, and breaks down how the sales tax works in California:

...few recession-weary consumers are rushing to buy cars or major appliances before the cost of big-ticket items goes up. Economists say the additional 1 percent that shoppers in California will pay to the state beginning April 1 just isn't enough to persuade them to make that nonessential purchase.

"Things that you were planning on buying in the next couple of weeks, you might buy," said Bill Roberts, director of the San Fernando Valley Economic Research Center at California State University, Northridge. "I don't see the big rush."

The California sales tax is currently 7.25 percent, of which 1 percent is allocated to local governments. Shoppers in Los Angeles County pay an additional 1 percent to fund transportation projects. That means Wednesday's 1 percent tax hike, designed to help alleviate the state budget crisis, will boost the sales tax in much of Los Angeles County from 8.25 to 9.25 percent.

The L.A. Times sums up man in the street reaction, which ranges from "If you're going to increase my taxes, I'm going to think a lot more before I spend...How are we going to fix the economy if we don't spend?" to ""With everything that's going on, with the situation we're in, they now want to make things more expensive?...It's tough and it's ugly" to "It's something we have to do to close the state deficit." The Times also notes state residents planning to make more purchases online from out of state. Legally, you still owe taxes to California on such purchases, called a "use tax," but that's obviously much easier to evade, and most people do.

The Jarvis Taxpayer Foundation, as is their wont, are appalled, calling the tax hike an "April Fool's joke" on Californians. Why?

Sales taxes are highly regressive taxes that tend to disproportionately burden the poor. There is often little or no relationship between the amount of increased sales taxes paid and the benefits received by the taxpayer.

The Jarvis link also contains a helpful, thorough list of what every locality in the state's sales tax is now. The L.A. Times also reports on the plight of Pico Rivera, where "sales taxes will have climbed from 8.25% to 10.75% in just three months -- a total tax increase of 30% that is still sinking in for many residents and businesses."

For some perspective on the state fiscal crisis for which the sales tax increase is meant to be part of a solution, see this study from the Reason Foundation, the L.A-based think tank (which operates Reason magazine, where I work as a senior editor), which finds:

state revenues jumped 167 percent between 1990 and 2008. In FY 1990-91, the state took in over $38 billion in General Fund revenues. By FY 2008-09 revenues were $102 billion. If California had simply limited its spending increases to the 4.38 percent average increase in the state's consumer price index and population growth each year since FY 1990-91, the state would be sitting on a $15 billion surplus right now.

The image associated with this post was taken by Flickr user Richardmasoner. It was used under user Creative Commons license.