

California Won't Accept Its Own IOUs - gasull
http://www.courthousenews.com/2009/08/04/California_Won_t_Accept_Its_Own_IOUs.htm

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dlsspy
You have to pay taxes on your income, but you cannot pay taxes with your
income.

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skushch
I'm confused:

"17. Can I use my registered warrant to pay my State taxes? You can use a
registered warrant to pay some of your State tax liabilities, although you
will not receive interest unless you hold the warrant until it is redeemable.
For more information, visit the Franchise Tax Board’s website at
www.ftb.ca.gov." from: <http://www.sco.ca.gov/5935.html>

And: "We will accept registered warrants that are not yet redeemable for full
face value towards the payment of tax liabilities." from:
[http://www.ftb.ca.gov/aboutFTB/newsroom/Registered_Warrants....](http://www.ftb.ca.gov/aboutFTB/newsroom/Registered_Warrants.shtml)

Is the state not accepting them for payment of sales tax? Or?

Aside from that... 3.75% interest on those, that is tax free. Sounds like a
deal to me.

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zargon
Great reason not to do business with the state. In any other transaction you
get to dictate the form of payment, but in the government's case it's the
other way around because you have no recourse if they renege.

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gamblor956
Actually, you can sue them, which is what the businesses in question are
doing.

It's not the best recourse, but it is the recourse intended by our system.

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krschultz
I don't understand how the IOUs are constitutional

Article 1 Section 8 (Powers of the Federal Congress)

"To coin Money, regulate the Value thereof, and of foreign Coin, and fix the
Standard of Weights and Measures;"

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TomOfTTB
I don't think it's any violation of the Constitution per se.

Put it this way. As is pointed out in the other comment a Bond is not
considered currency and states issue those. A Bond in is just a certificate of
debt. Whoever issues the bond is borrowing money from you and then paying you
interest in return. So it represents currency but is not in itself currency.

An IOU is simply a Bond that doesn't collect interest. California is in effect
using it's governing power to force it's vendors to buy high-risk, no interest
Bonds from them.

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byrneseyeview
_An IOU is simply a Bond that doesn't collect interest._

A dollar is a t-bill with an interest rate of 0% and a maturity of now.

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TomOfTTB
Look, I didn't make the rules. But the bottom line is in economics there is
currency and there is debt. Is debt just the absence of currency? Isn't Debt
worth as much as the currency it represents? Does that make the line blurry?

Yes on all counts. But that's how it works. Debt does not count as currency.

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grellas
If anyone wants to sue over this, pay attention to which day you go to file -
all California courts will henceforth be closed the third Wednesday of every
month. Your public dollars at work.

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modoc
Yeah. I'm VERY glad I'm not a vendor to the state.

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mynameishere
Imagine the problem they would have if they _did_ take them as taxes.
Ultimately CA _must_ pay back its debts with federals, and the federals must
come from taxation, eventually. (That or a bailout) Taking IOUs instead of
cash is a serpent-eating-its-tail scenario.

This is actually how hyperinflation can occur, as CA has, in a sense, two
forms of money--one they don't control, and one they do. For now, the one they
control -sort of- has value, while the one in which their debts are
denominated is uncontrollable. If the US and CA were separate countries, and
inimical to one another, the US could drive those IOUs down to nothing.

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swolchok
I don't understand your first paragraph. Taking their own IOUs is equivalent
to reducing the debt. The problem is that they effectively want to borrow
money against the IOUs for free, by refusing to accept the IOUs as tax
payments.

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mynameishere
In a best-case scenario for CA, it could pay down its entire debt with IOUs.
After that, its finances would somewhat improve because the IOUs pay (I think)
three percent interest rather than whatever the bonds do. But then, imagine if
the bond holders could sell those IOUs to California citizens for 99 cents on
the dollar so that they could pay their taxes with them. The state would
suddenly have its own paper on its books and would then need to borrow 26
billion dollars overnight, and the bond market would spank them. Of course, in
that same scenario, they could conceivably just pay out the IOUs again, which
is how a normal currency works.

Taking them piece meal as taxes would do the same thing, more slowly.

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ajg1977
Given that the state of California's budget has been getting progressively
worse annually, I can't wait to see what next year brings :(

