2009-Nov-06 08:53 UTC
Reverse Loansharking: Legal in California
Everyone is familiar with the term "loansharking"

loan-shark-ing (lōn′shärkĭng)

n. Informal
The practice of lending money at usurious, often illegal interest rates.

Typically, loansharks lend you money at high rates, and when you can't pay back they send their "muscle", say Vinny, to collect, and if you don't pay, Vinny; will break a thumb or an arm to make sure you pay next time. The borrower seldom has a say in the matter when Vinny shows up to collect.

So what is reverse loansharking then? Well, if one can imagine the reverse scenario described above, where the borrower is the one that is able to flex his muscles and push the lender around, that would be a good description of the reverse of a practice known as loansharking. Say the borrower borrows money from a lender, yet when it is time to pay back the loan, he refuses to do so. And when the lender asks for payments, the borrower sends his "muscle", Joey, to straighten the lender out; perhaps break a leg to drive the message home.

In this second scenario the lender has left without a say, because Joey, much like Vinny in the first example, doesn't listen to reason or logic, nor have any respect for laws.

That's what it feels like here in California. My employer's CFO sent the following email message.

This message is intended for all California state taxpayers.

As a part of the recently passed state budget, California lawmakers have elected to draw upon the tax base of its citizens and have increased the amount companies are required to withhold for state income tax by 10%, effective for wages paid after October 31, 2009. This change only impacts the amount of your state tax withheld from your paycheck, the recent budget did not include an increase in actual tax rates. This change will affect your November 15, 2009 paycheck and future paychecks from that point on. Depending on your level of compensation and the number of withholding allowances you have currently elected, the impact to your net check may be greater or less than 10%.

Assuming you currently have elected withholding allowances adequate to cover your annual State of California tax obligation, the result will be an increase in your refund after filing. If you believe your current level of state taxes withheld is adequate to meet your state tax obligation, you may wish to consider revisiting the number of withholding allowances you have selected to compensate for the increase in withholding tax. If this is the case and this option appears appropriate for you in light of your personal tax status, then review your next paycheck carefully to determine if you wish to change your withholding allowances based on a revised tax calculation. We do not know each employee's personal tax situation and cannot advise you on what withholding allowance changes, if any, you may wish to make. If you are considering such an action, we do recommend that you consult with your own tax advisors if you have questions on how many withholding allowances to elect. We can tell you that, as a general rule of thumb, each withholding allowance makes a difference of approximately $4.54 in state taxes withheld per pay period. For example, if you increase your allowance by 1, you will decrease your taxes withheld by $4.54 in each paycheck. The higher the number of allowances, the lower the tax withheld.

You may adjust your California tax withholding allowances at any time. [...]

Best regards,

J. B. Chief Financial Officer

California, with this action, is essentially engaging in a reverse loansharking racket. California is using employers to make employees into lenders, presumably lending money to the State at a very cheap interest rate of zero percent. Assuming California is able to pay back the "extra" taxes (read: the free loan) they are forcing employers to withhold, when April Fools' day (read: tax day) rolls around, they are bumming a free loan from California workers, who basically are left without any say in the matter.

One wonders what may happen if California is unable to pay back this "illegal" and forced loan on April Fools' day? Would an answer to this dilemma be to simply increase CA income taxes as they did with CA sales taxes not so long ago?
... sidster
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