California Stealin'? Gov't Forces Paycheck 'Loan'

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The state of California will soon start withholding an extra 10 percent out of residents' pay checks.

However, the Los Angeles Times reports the hike is technically not an income tax increase. Instead, the cash-strapped state is just "borrowing" the money from taxpayers.

The newspaper likened it to a "forced, interest-free loan" for the state government.

"Many families are sitting at their kitchen table wondering how they're going to make ends meet," said state Sen. Tony Strickland, R-Thousand Oaks. "At the same time, the state of California is taking a no-interest loan."

Leaders say Californians will get any extra withholding back in April. Those who would have already gotten a refund will get a bigger one and those who owe taxes will owe less.

Given the state of the economy, the plan isn't very popular with Californians.

However, there may still be a way around the budgetary move. Brenda Voet, a spokeswoman for the state's Franchise Tax Board, said knowledgeable tax-payers can skirt the measure by increasing the number of personal allowances they claim on their employer tax forms.

But according to the LA newspaper, for store owners whose business' survival depends upon the holiday shopping season, the hike comes at a bad time.

"I don't think there's any question it's going to impact consumers' spending," said Bill Dombrowski, president of the California Retailers Association. "Any time you reduce people's disposable income, there's going to be a negative effect on the retail sector."

While each withholding may not seem like a large amount, the total amount will add up to $1.7 billion -- putting a respectable dent in the state's deficit.

Many economic experts say the move simply won't do the trick. Christopher Thornberg, a principal with Beacon Economics in Los Angeles, says the measure doesn't really fix California's budget gap - it just hides it.

"I call it a fraud," he said.

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