In 2003, California made national attention with the election of Arnold Schwarzenegger as Governor, and was proclaimed to be the state of plenty for all who came. Since the recession, however, the state has slowly slipped into a state of near-implosion, and any praise for the state comes from those either too partisan or too economically biased to admit the truth.

Two recent bits of news add more damage to California’s already laughable reputation. First, California has the nation’s largest unemployment rate, at 9.8 percent. Partisans claim its ranking as second in payroll job growth – behind Texas – is proof the state’s efforts at economic recovery are working, but that’s like saying a cut of $85 billion after several years of skyrocketing federal budgets is a major cut in spending. (Oh, wait – that happens too.)

The second hit to California is a retroactive tax worth $120 million on the backs of 2,500 businesses and stockholders. From Fox News:

California’s top-end taxpayers — already steamed over a recent hike in the nation’s highest state income tax — are now fuming over a new $120 million retroactive tax grab on small business owners.

In December, the state’s tax authority determined that a tax break claimed over the past few years by 2,500 entrepreneurs and stockholders of California-based small businesses is no longer valid and sent out notices of payment.

“How would you feel if you made a decision, which was made four years ago, (and) you absolutely knew was legally correct and four years later a governing body came in and said, ‘no, it’s not correct, now you owe us a bunch more money. And we’re going to charge you interest on money you didn’t even know you owed’,” Brian Overstreet told Fox News from his office north of San Francisco.

Why is this happening? Because bureaucrats want it to:

But the FTB changed its interpretation of the law after a state appeals court ruled unconstitutional a qualifying provision of the break requiring companies to maintain 80 percent of their workforce in California. Instead of asking the legislature for guidance on what to do, the FTB suspended the break in its entirety and ordered anyone who’s claimed it in the last five years to pay up.

Fortunately, it seems even the bureaucrats recognize the inanity of the tax increase:

The taxpayers fighting the FTB [California’s Franchise Tax Board] won an early victory in their fight when the tax board announced a temporary delay in issuing actual bills, technically called Notices of Proposed Assessments. It’s believed the additional time is to allow the state’s political leaders time to figure out a solution.

“Once the revenue is identified, those folks up in Sacramento will figure out how to spend it already,” warns former state Sen. George Runner. “And that’s what makes this so difficult. Even though it has this great bipartisan support as being wrong.”

Earlier this month, lawmakers from both parties introduced legislation that would force the FTB to scrap the retroactive tax bills. “Californians planned and based their actions on the language of the law as it existed,” Democratic Sen. Ted Lieu said in a statement. “Going backward in time and changing the rules innocent taxpayers relied upon violates the very essence of the rule of law.”

Republican Assemblyman Jeff Gorell’s companion bill would prohibit the state from charging interest and penalties in similar situations in the future.

Philosophically, one can debate whether or not California should be offering special tax credits to businesses. Should a simple sales tax be the law of the land? Or a flat tax? Either one would treat all taxpayers fairly. On the other hand, states compete against other states for business – and California has been on the losing end of that competition for some time. Bribing businesses to stay may be a positive thing for the state’s citizens.

Given the bipartisan support for the tax credit, it is likely the tax increase will not go into effect. In the meantime, however, California is showing the rest of the nation why its economy is tied for worst in the nation.