Withholdings, Salience and Tax Policy
On November 1, 2009, California introduced a 10 percent increase in wage withholdings. Curiously, this withholdings change was not accompanied by an increase in actual tax liability. In other words, taxpayers would see a larger amount taken out of each paycheck, only to receive that money back as a refund during the next tax-filing season. Under this plan, there is no significant gain in revenue for the state, just a change in the timing of tax payments. The aim of the policy is to cover short falls in the current budget by drawing on tax payments earlier than normal — a “payday” loan of sorts for the state government. The only difference is that this payday loan carries an interest rate of zero, with taxpayers fronting the cash.