California extended income but not sales tax hikes, though local sales tax increases dropped California in the Index’s sales tax component.
Cities jolted by a new CalPERS rate increase laid out in their annual pension reports this fall are finding few options for cost relief. Basically, they can pay more now to avoid higher costs later or curb the growth of employees and their pay.
As rising pension costs squeeze funding from government services, a big change could come from a state Supreme Court decision. Two unanimous rulings by appellate court panels allow cuts in pensions earned by current employees in the future.
Appeals of the two rulings have yet to be heard by the Supreme Court. How the high court will rule, and what might follow if the groundbreaking appellate rulings are upheld, is far from clear.
The productivity of workers in an economy depends, in part, on the flow of capital services enabling their production. Even in a closed economy, reductions in the corporate tax rates and the associated capital deepening may imply a higher marginal product of labor and higher wages. The ability of domestic U.S. firms to invest foreign profits overseas exacerbates the implications of corporate tax policy for domestic workers; an uncompetitive domestic corporate tax rate reduces the demand for U.S. workers by encouraging capital formation abroad. Indeed, when viewed in this way, the incidence of the corporate tax could theoretically fall entirely on U.S. workers, so long as workers are immobile and capital moves freely across borders.
The Sacramento region’s largest local governments will see pension costs go up by an estimated 14 percent next fiscal year, starting a series of annual increases that many city officials say are “unsustainable” and will force service cuts or tax hikes.
The increases come after CalPERS in December reduced the expected rate of return from investments, forcing local governments and other participants in the state’s retirement plan to pay more to cover the cost of pensions.
. . . Leyne Milstein, the city of Sacramento’s finance director, said the city’s pension costs will double in seven years. While city revenues have also increased in recent years, thanks in part to a strong real-estate market, they have not increased as much as pension costs in actual dollars.
“It’s not sustainable,” Milstein said. “These costs are going to make things incredibly challenging.”
Davis’ finance director, former state Sen. Steve Peace, accused Washington of treating Sacramento “like a colony,” contending “it’s nothing short of a confiscatory federal tax policy. It’s no mystery why Californians feel overtaxed. They are.”
That was baloney, even by political standards. If Californians feel overtaxed, it's because of Sacramento politicians and state voters, not Washington.