BUSH TO STATES: DROP DEAD….Here’s an extra little effect of the Bush tax plan that no one has noticed: we already know they dropped the idea of any state bailout money, but it turns out that in addition the plan might actually decrease state tax revenue. According to the Center on Budget and Policy Priorities:
If dividends are no longer taxable for federal tax purposes, there would be little reason for the federal government to continue to require all the paperwork entailed in reporting the amount of dividends received by each person….The information necessary for reporting and compliance would not exist, and thus states would have no choice but to exempt dividends from taxation.
Like most states, California bases its state income tax on federal definitions, so if the feds stop taxing dividends, so do we. And even if we decided to do it on our own, we might not be able to if companies no longer report the data to the IRS.
Cost to California: about $1 billion or so. Thanks a lot, George.