Easy come, easy go. Last Tuesday, the 17th, we heard the latest economic stimulus will bring $800 in Federal tax savings this year for married couples ($400 for single). Three days later the California budget stalement was settled, bringing with it a variety of "temporary" tax increases.
California's budget has grown by $50 billion in 10 years (from Gray Davis' first budget in 1999-2000 to Arnold's budget today). But revenues haven't kept up, to the tune of $42 billion. Part of the plan to make up this difference is to 1) raise income taxes, 2) raise sales taxes, 3) reduce dependent tax credits, and 4) raise vehicle license fees. OUCH x 4!
Let's see how much this is gonna cost us:
1. Income Taxes: Increases .25% immediately. But if the state gets $10 billion in Federal stimulus funds, the increase halves to .125%. The median household income in Ventura County is $85K...which translates into a tax increase of $106 to $212 per year.
2. Sales Taxes: Effective April Fool's Day (no joke), sales taxes increase by 1 percentage point, from 7.25% to 8.25% in Ventura County (our friends in the L.A. County portion of Westlake Village, Agoura, etc. will chew on a meaty 9.25% sales tax). For a typical family spending $20K/year on taxable products, say buh bye to another $200 per year.
3. Dependent Tax Credits: This one hurts families and single parents. The Dependent Tax Credit on your California tax return has been sliced from $300 to $100 per dependent. Thus a family of 5 like Conejo Joe's clan is nailed for another $600/year in damage. Heck, I guess I shouldn't feel so bad...the OctoMom, with her 14 kids, is down $2800 in tax credits!
4. Vehicle License Fees (VLF): Effective 5/19/09, the VLF increases from .65% to 1.15% of your car's value. So let's say you have 2 cars with a value of $20K apiece. There goes another $200 down the drain.
So overall a California family of five with $85K in taxable income will be down by $300 to $400 per year, even with the one-time Federal stimulus. This is not stimulating.
But hey, what about that new Federal New Car Sales Tax Deduction! Buy a new car by 12/31/09, you get to deduct sales taxes on the car. So let's say you buy a new car for $25K. If you buy it before 4/1/09, you owe $1812.50 in taxes in Ventura County. At a 25% income tax rate you will save $453 in Federal taxes. That's not too shabby. But if you wait until after 5/19/09, your sales taxes increase by $250 and your VLF increases by $125, rendering the Federal new car stimulus pretty meaningless. Bottom Line: If you buy a new car this year, consider buying it on 3/31, the last day of the 1st quarter...when dealers are hungriest to sell AND you avert the coming tax increase(s).
California Home Buyer Tax Credit: California did come out last week with an interesting home buying incentive. Buy a brand new, never occupied home between 3/1/09 and 3/1/10, take a 5% income tax credit, up to $10K! There are NO income limits and you DO NOT need to be a 1st time homebuyer! There is some fine print on this however: 1) the tax credit is spread out over 3 years from the date of purchase, 2) the house must be your primary residence for 2 years, and 3) the state has allocated $100 million towards the credit. First come, first served, once the $100 million (or roughly 10,000 new homes costing $200K or more) is used up, the credit is gone.