The volatile incomes of the wealthy, mostly derived from capital gains, are causing ongoing problems for California to develop successful budgets.
The independent State Budget Crisis Tax Force has released its analysis of California's finances and found that rather than being a whopping $28 billion in debt, as Gov. Jerry Brown alleged with he came to office, the state is actually a nearly unfathomable $335 billion debt. Brown called it a "wall," as the New York Times noted. But it's really more like a dozen walls. All stacked on top of each other to make a mega-wall that blocks out the Sun.
This is not an exaggeration. Californian's total level of debt, on and off the books, is pushing a fifth of the total annual economic output of the state, which is about $2 trillion.
Some of the usual suspects are responsible for this: overspending and undertaxing during boom times, colossal pension liabilities, taking on too much debt. But the report zeroed in on an important area that I've written about before: a California tax system that relies far too much on the incomes of the wealthy, and in particular on income derived from capital gains, or the sale of stocks, bonds, and other assets (see the chart above, which I grabbed from the report).
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A pedestrian walks by an H & R Block office on April 15, 2011 in San Francisco, California. Despite having an extra three days to file your income taxes this year, an estimated 15 to 20 million people will wait to the very last minute to file their taxes with a high number relying on tax preparation services.
Taxpayers are getting a bit more time this year to file their federal income tax returns. It's Emancipation Day in the District of Columbia today — that's the day the slaves were freed in D.C. — so federal offices, including the IRS, are closed. And because April 15 fell on a Sunday, the government has to give taxpayers an extra day. So this year, Tax Day will be Tuesday, April 17.
That's tomorrow! If you haven't done your taxes yet, don't freak out. There's till time and it's not as big a hassle as you might think. You just need to use technology.
I'm old enough to have filed 1040-EZ forms by hand and both 1040 short and long forms, with a variety of schedules, also by hand. In the mid-1990s, I obtained the services of an accountant and we enjoyed a happy collaboration for around 15 years. But then I decided to go back to doing my taxes myself, mainly because I was bumping up against the deadline and didn't think I'd have time to get everything ready for my tax guy, but also because I was curious about tax-preparation software.
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MYRTLE BEACH, SC - JANUARY 16: Republican Presidential candidates, former Massachusetts Gov. Mitt Romney (L) and former U.S. House Speaker Newt Gingrich (R-GA) share a laugh during a Fox News, Wall Street Journal-sponsored debate at the Myrtle Beach Convention Center, on January 16, 2012 in Myrtle Beach, South Carolina. Voters in South Carolina will head to the polls on January 21st. to vote in the Republican primary election to pick their choice for U.S. presidential candidate. (Photo by Joe Raedle/Getty Images)
Mitt Romney released his 2010 and 2011 tax returns today, revealing that he is, as we already knew, R-I-C-H. What's eye-popping — and what explains why Romney has been reluctant throughout his political career to provide a window into his finances — is how low his federal taxes are, relatively to people who make their money on "earned income," such as wages and salaries.
The numbers are large. In 2010, Romney made $21.6 million on 2010 and paid $3 million in federal taxes, and effective rate of just 13.9 percent. In 2011, he reported making $20.9 million in 2011 and expects to pay an effective rate of 15.4 percent.
If it's any consolation to people who routinely pay taxes the mid-20-percent bracket, the Romneys overpaid in 2010, to the tune of $1.6 million. Time for a new accountant, Mitt!
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Warren Buffett, chairman of Berkshire Hathaway, attends the Allen & Company Sun Valley Conference.
Last year, Warren Buffett wrote a much-cited and blogged-about op-ed for the New York Times arguing that rich people don't pay enough taxes. Fine, responded the anti-tax Republican crowd, suggesting that if Buffett was so hot to part with his money, he could always write the government a check.
A change to tax forms was proposed, allowing wealthy taxpayers to pay more, to reduce the national debt. And now Buffett is saying that he'll match, from his vast fortune, dollar-for-dollar whatever Republcian members of Congress voluntarily contribute.
The U.S. national debt currently stands at $15.2 trillion, about a trillion more than the entire yearly GDP of $14.5 trillion. Warren Buffett is worth about $50 billion. The average net worth in Congress was about $750,000. Rep. Michael McCaul of Texas, a Republican, is worth $294 million.
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The top of a form 1040 individual income tax return.
The Internal Revenue Service: As tax season kicks off, we're reminded that no other federal agency is held in higher contempt. But the IRS is struggling with issues beyond its image. According to this story in USA Today, its "budget is too small and its workload too heavy" for the IRS to do its job. And this is while additional cuts to the IRS budget are being considered by Congress:
Driving the IRS workload increase is increasing complexity of federal tax laws and regulations and frequent changes in the tax code — an estimated 579 changes in 2010 alone that had to be explained to taxpayers, entered in IRS computers and added to the agency's auditor training programs.
Ah, the complexity bugaboo. This may increase the IRS workload, but given that tax collections are the government's main source of revenue, this is a problem that urgently needs solving. Especially for people like me, who advocate for a far more complex tax code, managed by more powerful technology.