By Richard Rider | Most of us are less wealthy than last week. The stock market and crypto-currencies took dramatic tumbles. But it’s actually a triple whammy — especially for Californians.
Not only did our investments, IRAs and 401(k)s take a belly punch. The drop in equity values means that our mandatory obligation to our California state and local public servants jumped as well, as the unfunded pension obligations just soared higher. And then there’s that coming California capital gains tax shortfall.
Only our risk-free public employees are pretty much unconcerned about economic downturns. Because the government worker pensions are guaranteed, we hapless taxpayers will simply have to write bigger checks to make up the bigger shortfall.
And to add pain to suffering, a stock market downturn translates in into lower capital gains on tax returns. Few realize that the major reason we have a California “budget surplus” (ignoring the Madoff-type accounting used) has been the flood of capital gains tax revenue into state coffers fueled largely by our rising stock market.
Our federal and California combined capital gains tax is the second highest in the world. This windfall has been used primarily to raise the pay of our “long-suffering” public employees — a “ratchet” budget item that now recurs every year. If the capital gains tax revenue plummets, well, you know who gets to make up the difference.
With the change in state tax deductibility on federal tax returns, it’s likely that more taxpayers — especially wealthy taxpayers — will leave our high-tax Golden State, putting these pension obligations in their rear-view mirrors. Those who remain will have to make up that shortfall as well.
Richard Rider, a longtime friend and political ally, is chairman of the San Diego Tax Fighters. He was named Taxfighter of the Year in 2009 by the Howard Jarvis Taxpayers Association.