Wednesday, August 4, 2010

Never Underestimate

the willingness of California's Democrats to toss tenants under the bus. No, that's not quite fair. They mostly just pay no attention to the ways in which their proposals affect the tenant population. The Democrats in the State Legislature have released their latest budget proposal, and some of it is good. It reduces the state sales tax, which will help lower-income Californians, who spend a disproportionate share of their income paying that tax. It increases the vehicle license fee, which should never have been reduced in the first place.

But then it does something else, and that something else is very bad for tenants. It raises the state income tax, and makes the assumption that taxpayers will recoup much of that increase by deducting state taxes on their federal income tax. But most tenants here don't itemize, as most of those who itemize do so to take the mortgage interest deduction. So we'll just pay higher taxes.

It gets worse though. Because housing prices in California are much higher than those in the rest of the country, tenants here already pay high federal income taxes. An income of $50K in many parts of the country would enable you to buy a nice house; here it enables you to rent an apartment with a roommate. So the small sum we'd save on the sales tax would be more than offset by the higher state income taxes. Grrr!

Update 8/5/10: As I expected, not 48 hours after the Democratic proposal was first unveiled, the Republicans have hauled out the poor, seniors and, yes, tenants, as potential victims of the Democratic proposal. Following in the footsteps of such Republican luminaries as Dick Armey and Steve Forbes (remember Angry, they've suddenly discovered that tenants pay more of their income in taxes because we don't itemize our federal taxes. Whoa! Can statewide "just cause" eviction legislation be just around the corner?

But it should be noted that those paying at the highest marginal rate are exempted from the tax increase, even though most of those taxpayers do itemize on their federal returns. If the Dems really want support for this, they need to show how those who don't itemize will benefit from the shift. The California Budget Project has a good post showing who itemizes and who doesn't.

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