We Meet Again, At Last. The Circle Is Now Complete.   8 comments

California’s budget, as any current resident is aware, is in deep trouble.

In a new report, Legislative Analyst Mac Taylor forecast that the state would need to close a $27.8-billion budget gap during the next 20 months. That projection is more than $3 billion higher than the Schwarzenegger administration has estimated.

That’s not chump change.  Arnold’s proposed solution is to raise the sales tax.  The response:

Though calling the governor’s proposal “credible,” the analyst said raising the sales tax would further hurt the economy by discouraging Californians from buying local products and instead send them to Internet purchases that escape the state sales tax.

Schwarzenegger’s proposed increase would make Californians’ average sales tax the highest in the nation, about 9.5%, the analyst said. Taylor recommended a smaller increase of 1 cent on the dollar.

The analyst favored increasing the annual vehicle license fee, from 0.65% of a car’s value to 1%. It is an idea that already has traction among Democratic lawmakers, but one that Schwarzenegger has resisted.

Ah, the vehicle license fee.  That fee that encourages people to only own the cars that they need.  That fee that cuts down on beaters being on the road.  That fee that… got… Davis… recalled.  Yes, there were some problems with it (its horribly regressive, even when applied to the car’s value), but I can’t help but wonder… how much more money the state would have in its coffers right now (not to mention fewer cars on the road) if that fee had been around since 2003…

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Posted November 11, 2008 by padraic2112 in news

8 responses to “We Meet Again, At Last. The Circle Is Now Complete.

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  1. Release the hounds!!!

  2. Horribly regressive? How is a tax based on personal property value regressive. As to getting beaters off the road? It has the opposite effect. Newer, and more expensive vehicles have more tax. It rolls off rather rapidly over 10 years, but I haven’t looked at the table in years. Says in the code that it is “market value”.

    “The VLF decreases with each renewal for the first 11 years.” What about year 12, I dunno. I thought it hit zero but didn’t find it.

    Also you’d be taxing new spending, as that registration fee is part of the purchase price. So same arguement about hurting the consumer. Anyway, as someone who thinks we over consume on new vehicles…. JACK IT UP!

    The only way you could be calling it regressive is by assuming that people with the least have to pay the greatest percentage. But at least it doesn’t hit those that are on the bus, like the sales tax.

  3. > The only way you could be calling it regressive is by assuming that
    > people with the least have to pay the greatest percentage. But at
    > least it doesn’t hit those that are on the bus, like the sales tax.

    Point about the bus taken and duly noted.

    However, with the exception of the crazy-stupid wealthy like Jay Leno who own more cars than they could ever possibly use, for practical purposes there’s only so many automobiles a person uses.

    If I have a car that represents a major portion of my necessary assets, and I’m poor, I’m stuck paying that fee, which represents a non-marginal amount of my takehome pay.

    On the other hand, if I have the choice to pick between a 50 and 60 thousand dollar car, the vehicle license fee is unlikely to represent more than a hiccup in my cash flow.

    It does get beaters off the road: people who don’t need three cars, but have three because its convenient to let their teenage daughter “have” a car… get rid of them.

  4. I’d say that only at higher levels than it is now does the VLF cause someone to get rid of little Susie’s car. First to feel the full impact, you’d have to be the original purchaser. Then you might have 0.15 of the original 25k as the tax base. 3,750… at 1% is 37 bucks, and the registration fee is 35. Still a small fee to pay to not have to get out of bed at 7 am and drive to the local community college and then back.

    The VLF doesn’t get the beaters off the road… but it does benefit second owners… hence it can be a little less regressive still. If you know anyone that can only afford second or third hand cars, their base starts at purchase price and rolls off from there. Say the single family van is purchased at five years old, it starts at 10k and rolls off from there. The only thing that gets it off the road is when the thing won’t pass smog. And there are some people getting around that as well.

    Even when the car value is so low that people don’t find it worth selling… they give it away to charity. And if it passes CA smog… you better believe it stays in CA.

    I had a different idea for how VLF should have been adjusted, maybe someday I’ll post it and you can have a turn to comment. A turn in the peanut gallery!

  5. > First to feel the full impact, you’d have to be the original purchaser.

    Is this right? (Note, I may be crazy-off-base here). My understanding of the VLF is that it applies whenever you renew your registration. http://www.dmv.ca.gov/pubs/brochures/fast_facts/ffvr10.htm

    Sure, it decreases after the first year, but the fee is based upon the value of the car when acquired, and the 11 year renewal “depreciation” applies even if you’re the second or third owner of the car… it’s not “11 years after the car is first registered in CA”, it’s “11 years after you buy the car”… so that cycle resets whenever the car is registered to a new owner.

  6. “when acquired.” I couldn’t find clarity on it. They do require market value to be determined on all transfers.

    My fourth search finally came up with something, that it works as you say it does.

    Then my fifth search contradicts it!

    http://www.lao.ca.gov/analysis_2002/2002_pandi/pi_part_5d_vlf_anl02.html

    Poor technical/financial writing skills in govt? Who knew.

  7. Couple more source coming up based on the reported sale price…

    http://www.dmv.org/ca-california/bill-of-sale.php

    Not an official state site.

  8. Ok,

    Full impact…. meaning that you get taxed on 100% of the original purchase price. So since I have been off and on this topic. Let me sum up… the second owner starts with 100% of a reduced “aquisition price” which is the sale or fair market value price. I suppose they will adjust up if your uncle sells you a car for $5. That’s where I was starting the second owner at a lower 10k value… that timer does reset, they pay 100% of the reduced value that year, agreed. Then it still rolls off on a schedule to the point where in year 11 for that purchaser it is 15% of 10k. Therefore, ends a 1500 base, which each 1% of that is not as regressive as it is presented.

    In fact since it never rolls off for the original owner, it can be a disincentive to the original owner keeping the car, and a friend to those in the market for used vehicles. Since the new owner could pay less, and start an accelerated depreciation. But the vehicle doesn’t just disappear from the streets based on 15 bucks more tax.

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