California: You owe us taxes on those IOUs

Bruce McQuain calls this the theater of the absurd, but that implies humor and entertainment value. Unfortunately, California’s attempt to get hard cash in taxes based on payments to businesses it made with imaginary money is neither humorous or entertaining.  It does demonstrate the complete disconnect from reality suffered by the state’s political class in Sacramento:

Small businesses that received $682 million in IOUs from the state say California expects them to pay taxes on the worthless scraps of paper, but refuses to accept its own IOUs to pay debts or taxes. The vendors’ federal class action claims the state is trying to balance its budget on their backs.

Lead plaintiff Nancy Baird filled her contract with California to provide embroidered polo shirts to a youth camp run by the National Guard, but never was paid the $27,000 she was owed. She says California “paid” her with an IOU that two banks refused to accept – yet she had to pay California sales tax on the so-called “sale” of the uniforms.

California wants Baird and her colleagues to pay taxes on money she never received.  The state of California hasn’t paid her the money they owe her, but they want her to pay the money she owes them.  In any other situation, a court would laugh this one right out the door, and perhaps the federal court will do so.  Baird would have no chance at all in a state court.

When governments start issuing IOUs instead of actual US currency, they are legitimizing that kind of transaction for themselves.  To give Baird a pile of literally worthless paper and then object to Baird responding in kind is the worst kind of hypocrisy.  Either California’s government deals in scrip, or it doesn’t, but the rules should be the same in either direction.

It’s difficult to think of a more breathtakingly stupid series of actions in government than what we’ve seen in California over the last few months.  This one is practically pathological.