by John Hawkins | January 2, 2009 5:51 am
There’s a certain level of unreality we have in this country about the debt the government runs up. It’s almost as if people believe that the government can go as far in the red as it likes without there being any significant consequences. Somehow, it’ll just all work out.
However, any taxpayers in California who happen to believe that are going to get a very rude awakening when the time comes for them to get their refund checks,
If you expect you’ll be getting a refund from California when you file your 2008 state income tax return, be prepared: you may instead receive a “registered warrant.” Translation: an IOU.
California is rapidly running out of money. Blame it on the state budget deficit that continues to bleed billions of dollars from California’s reserves. Facing inadequate credit to make up the difference, California’s Controller John Chiang warns that by the end of February, the nation’s most populous state may not be able to pay some of its debts, and instead be reduced to issuing those creditors IOUs.
…California has not resorted to IOUs since the 1992 budget crisis when Pete Wilson was governor. Back then, some 100,000 state employees got IOUs instead of paychecks for two months until the state approved a budget. The 1992 crisis came during summer, well past the tax season, but at least 12,000 tax refunds were also issued as IOUs, according to a contemporaneous report in the Los Angeles Times.
…In 1992, banks honored the state’s IOUs, cashing them on demand, and then receiving an additional 5% from the state when it made good on the obligations. In effect, the IOUs served the state as unsecured bridge loans from banks. But this time around, with credit tight and banks still feeling the impact of the fall meltdown in the financial services industry, it is not yet clear how banks will respond.
In other words, the state of California is serving notice that it may not have enough cash on hand to give its citizens back the money they overpaid in taxes.
The really scary thing is that the general reaction to stories like this is a shrug of the shoulders. It should be something more along the lines of “Holy crap! We’ve got to get spending under control right this second!”
PS: Whenever I hear someone say we need more Republicans who are fiscal conservatives, but not social conservatives, I think of Arnold Schwarzenegger. He was elected on exactly that kind of platform. However, what you generally find when you get down to brass tacks, is that the Republicans who aren’t social conservatives aren’t fiscal conservatives either. There are exceptions, but at least 75% of the time if you show me a Republican who’s not socially conservative, I’ll show you a big spending Democrat who thinks it’ll be easier to get elected with a (R) beside of his name than a (D). That’s certainly the case with Arnold, who is to the left-of-center on almost every issue you can imagine, fiscal or social.
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