California lawmakers are pushing legislation that would impose a new tax on the state’s wealthiest residents — even if they’ve already moved to another part of the country.
Assemblyman Alex Lee, a progressive Democrat, last week introduced a bill The California state legislature will impose an additional annual tax of 1.5% on those with a “worldwide net worth” of more than $1 billion beginning in January 2024.
As early as 2026, the threshold for taxation will drop: those with a global net worth of more than $50 million will be hit with a 1% annual tax on wealth, while billionaires will be taxed at 1.5%.
Global wealth extends beyond annual income to include assets as varied as farm properties, art and other collectibles, and stocks and hedge fund interests.
The legislation is a revised version of the property tax approved by the California Legislature in 2020, but the Democratic-led state Senate has refused to pass.
The current version which has just been introduced has the enabling measures California Wealth taxes should be levied on residents even after they move out of the state.
Exit taxes are nothing new in California. But the bill also includes provisions to create contractual claims attached to the assets of a wealthy taxpayer who doesn’t have the money to pay their annual estate tax bill because most of their assets don’t turn into cash easily. This claim requires taxpayers to make an annual filing with California’s Franchise Tax Board and pay the wealth taxes that would otherwise be owed even if they moved to another state.
There was California One of many blue levels Bills to impose new wealth taxes were unveiled last week. The other states are Connecticut, Hawaii, Illinois, Maryland, Minnesota, New York and Washington. Each state’s plan had a different tax approach, but they all centered around the same basic idea: make the rich pay more.
Lee’s office did not respond to a request for comment for this story. However, he has made public statements echoing the message that wealthier residents should pay more taxes.
“The working class has long borne the burden of taxes,” Lee wrote in a tweet. “The super rich are doing nothing by hoarding their wealth through property. It’s time to end that.”
According to Lee, the tax would affect 0.1% of California households and generate an additional $21.6 billion in state revenue, which would go into the state’s general fund. There is California On the highest lines In any state of the country.
Advocates argue that it could increase funding for schools, housing and other social programs. More importantly, though, Lee hopes it will help address California’s massive $22.5 billion budget deficit.
“This is how we can solve our budget problems,” he told the Los Angeles Times. “Basically, we can plug the whole hole.”
However, experts argue that the bill will have the exact opposite effect by increasing administrative costs and driving people out of the state.
“This brings significant administrative challenges with asset and liability valuation, high and distorted effective rates, and other issues that make it an inefficient revenue source,” Gordon Gray, director of fiscal policy at the American Action Forum, told Fox New Digital.
Others echoed the sentiment, arguing a new wealth tax would drive many wealthy residents out of California.
“The proposed California wealth tax is economically devastating, administratively challenging and will drive many wealthy residents — and their current tax payers — out of the state,” Jared Walczak, vice president of state programs at the Tax Foundation, told Fox News Digital. “The bill allocates $660 million a year for administrative costs, more than $40,000 for prospective taxpayers, giving an idea of how difficult it is to administer such a tax.”
A recent report suggests that people are already moving from high-tax states to low-tax ones Analysis James Doty, Emeritus and Professor of Economics at Chapman University. He found that the 10 highest-tax states lost nearly 1 in 100 residents in net inward migration between July 2021 and July 2022, while the 10 lowest-tax states gained 1 in 100.
California lawmakers feel they can “get around” residents pressing the wealth tax by “trying to tax people even after they leave the state,” said Patrick Gleason, vice president of state affairs for Americans for Tax Reform. However, he, Gray, and Walczak all questioned the legality of such an approach or labeled it outright unconstitutional.
Past studies have shown that the top 1% of taxpayers pay 50% State income taxes in New York, California and elsewhere raise the question of how a mass exodus of wealthy residents could damage tax revenues.
Walczak noted that a wealth tax would be particularly problematic for California, joking that the people most excited about such legislation should be those in Texas, where some high-profile Californians have relocated in recent years.
“A wealth tax could be particularly devastating in California, home to many tech startups, because owners of promising businesses could be taxed on hundreds of millions of dollars in estimated business value that may not actually materialize,” Walczak said. “Few taxpayers will pay wealth taxes, but many taxpayers will pay the price. The only people who truly want a California wealth tax are the people working in Texas’ Office of Economic Development.”
However, some proponents of wealth taxes argue that it is necessary to combat economic inequality.
For example, Maryland Democrat Rep. Jeanelle K. Wilkins proposed a bill that would have families pay a tax on inheritances over $1 million instead of $5 million, as is the case today. He said such ideas will gain more support now that the COVID-19 pandemic has exposed the inequality between the rich and the poor.
“It’s a little bit of funding that we’re leaving on the table,” he told The Washington Post.
Other proponents say wealth taxes are small and the rich can afford them. But experts note that because rates are on net worth, not income, they have a bigger effect.
Walczak explained this point in a recent blog post Mail, using the example of a $50 million investment held for 10 years, earning a nominal annual rate of return of 10% in an environment of 3% annual inflation. Without wealth taxes, that investment would generate an investment return of $46.5 million in current dollars after 10 years. However, with a 1% wealth tax, that would generate $37.3 million, wiping out nearly 20% of the gains.
Wealth taxes “cut deeply into investment returns, harming the broader economy,” Walczak wrote. “Average taxpayers don’t care if the super-wealthy have lower net worth. But they certainly do if innovation slows and investment slows.”
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