California is strapped for cash … so strapped … that instead of state tax refunds … folks may be getting an IOUs. Steve had already done a great post on that here. Now there’s video … courtesy of Neil Cavuto. Once again Neil brings some common sense to the situation.
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I expect that this could become a national trend if California goes forward with the idea. Other states – or any other government agency who collects withholding – could try the same thing.
Take a look at your 2008 income and tax burden and ensure the amount withheld is right at what it should be for this year. Why people think it's so great to get a big refund check from the government in the spring is totally beyond me. Put the money in a savings account!
Another weasel.
Let's see if I understand this. The State gives me an IOU, backed by the "full faith and credit" of the State. Dah! Didn't the State get into their current bind through financial ineptitude?
Ask not what the country can do for you, but ask what you can do for Congress and Labor Unions?
The cities in California have made additional blunders, meaning that the local level is as much of a mess as the state…
Creative borrowing catches up with California cities
Short form — to side-step the voters, the cities created "financing authorities" to make loans secured by city assets and future tax revenues before the current financial difficulties.
If they are going to issue IOUs, then they should also pay us the same interest and penalties they would charge us if we were late with our tax payments.
Maybe we could float the idea that we will be absolved of taxes for the period before we are paid what we are owed. Just for a little incentive.
When someone owes me money, whether there is an IOU or not, I do not send them more. I would stop paying state income taxes in 2009 until the IOU has been fulfilled. This, of course, is easier to do when you control the payroll.
Could the issuance of IOU's be another opportunity for Wall Street?
If various governmental units issue IOUs, a market could be developed by Wall Street to trade such IOUs. If you want your money now, you could "sell" your IOU to a broker, who could bundle them with other IOUs and find investors who would "buy" bundles of IOUs.
These bundles could be divided into tranches – so that investors could be found for different likely payment schedules for the IOUs in a bundle. Since these IOUs would be unsecured obligations of the issuer, the market price for the bundle would vary – from minute to minute, hour to hour, week to week, etc. depending on the economy.
Just think of how much money (or IOUs) could make my trading these IOUs! If the market for these IOUs sours, the Federal Government could set up an agency (like FNMA or Freddie Mac) to guarantee the IOUs.
Sound familiar?
(why stop there, how about your employer or anyone else paying you with an IOU)