Legislators in California are pushing for legislation that would levy a new tax on the state’s wealthiest people, even if they have migrated out of state.
Assemblyman Alex Lee, a progressive Democrat, submitted a bill in the California State Legislature this week that, beginning in January 2024, would levy an additional yearly 1.5% tax on those with a “worldwide net worth” exceeding $1 billion.
As early as 2026, the taxation threshold would decrease. Those with a global net worth over $50 million would be subject to an annual wealth tax of 1%, while billionaires would continue to be taxed at 1.5%.
In addition to farm assets, art, and other collectibles, the global wealth also includes equities and hedge fund interests.
Assemblyman Alex Lee (left), a progressive Democrat, submitted a bill in the California State Legislature last week that, beginning in January 2024, would levy an additional yearly 1.5% tax on people with a “worldwide net worth” exceeding $1 billion.
The bill is a modified version of a wealth tax authorized by the California Assembly in 2020 but rejected by the Democrat-controlled state Senate.
The just-introduced version includes provisions allowing California to apply wealth taxes on former residents years after they have left the state.
California already has departure taxes in place. However, this measure also includes mechanisms to create contractual claims related to the assets of a wealthy taxpayer who cannot pay their annual wealth tax obligation in cash since the majority of their assets cannot be easily converted to cash. This claim would oblige the taxpayer to file annual returns with the California Franchise Tax Board and pay any outstanding wealth taxes, even if they have relocated out of state.
Along with Connecticut, Hawaii, Illinois, Maryland, Minnesota, New York, and Washington, California was one of several blue states that introduced new wealth tax legislation last week. Each state’s proposal featured a distinct tax strategy, but they all centered on the notion that the wealthy should pay more.
Lee has made statements in public support of this message.
“For too long, the working class has borne the tax burden,” Lee tweeted. The ultra-wealthy pay next to nothing in taxes because they hoard their riches through assets. It’s time to finish this.
According to Lee, the tax would affect 0.1% of Californian families and raise an additional $21.6 billion for the state’s general fund.
California has one of the nation’s highest tax rates.
Proponents claim that the funds may be used to increase financing for schools, housing, and other social initiatives. Lee expects that it will help reduce the $22.5 billion budget deficit in California.
On January 10, 2023, California Governor Gavin Newsom presents his budget proposal in Sacramento, California.
He told the Los Angeles Times, “This is how we’ll continue to address our budgetary issues.” We could, essentially, plug the entire opening.
Fox News Digital spoke with Jared Walczak, vice president of state initiatives at Tax Foundation. ‘The law sets aside up to $660 million per year for administrative costs alone, or more than $40,000 per potential taxpayer,’ indicating the difficulty of administering such a tax.
A recent analysis by James Doti, president emeritus and economics professor at Chapman University, revealed that between July 2021 and July 2022, the 10 highest tax states lost nearly 1 in 100 persons due to net internal migration, but the 10 lowest tax states gained nearly 1 in 100.
Patrick Gleeson, vice president of state affairs for Americans for Tax Reform, stated that California lawmakers who support the wealth charge believe they can circumvent the problem of residents leaving by attempting to tax people even after they leave the state.
Gordon Gray, director of fiscal policy at the American Action Forum, told Fox New Digital, ‘It presents major administrative hurdles with regard to asset and liability assessment, high and distortive effective rates, and other issues that make it an inefficient revenue source.’
However, he, Gray, and Walczak all questioned the legitimacy of this strategy or deemed it unconstitutional.
Past research indicates that the richest 1% of taxpayers in New York, California, and other states pay approximately 50% of state income taxes.
This has prompted questions about the potential impact on tax income of a large flight of wealthy residents.
Walczak remarked that a wealth tax would wreak havoc on California, joking that those in Texas, where many prominent Californians have relocated in recent years, should be the most enthusiastic about this type of legislation.
Walczak stated, “A wealth tax could be especially destructive in California, home to so many tech startups, because owners of promising businesses could be taxed on hundreds of millions of dollars in estimated business value that never materializes.”
‘Very few people would pay wealth taxes, but many would bear the cost. The only individuals who should really support a California wealth tax are those who work in the Texas office of economic development.
Pictured is Jared Walczak, vice president of state initiatives at the Tax Foundation’s Center for State Tax Policy.
Nevertheless, some contend that wealth taxes are essential for reducing economic inequality.
Jheanelle K. Wilkins, a Democrat from Maryland, has presented a bill that would impose taxes on inheritances above $1 million, as opposed to the current $5 million threshold.
She stated that when the coronavirus epidemic highlighted the huge disparity between the rich and poor, support for such ideas will increase.
She told the Washington Post, “That’s a substantial amount of money we’re leaving on the table.”
Others argue that wealth taxes are modest and can be afforded by the wealthy.
However, experts argue that because the rates apply to net wealth and not income, they have a disproportionate impact.
In a recent blog post, Walczak demonstrated his point with the illustration of a $50 million investment kept for 10 years and achieving a 10% nominal annual return in an environment of 3% annual inflation. Without a wealth tax, this investment would earn $46.5 million in current dollars in investment returns after ten years. However, a 1% wealth tax would produce $37.3 million, erasing nearly 20% of the gains.
Walczak said that wealth taxes “substantially reduce investment returns, to the detriment of the economy as a whole.” It may not matter to the average taxpayer if the ultra-wealthy have smaller net worths. However, they will be concerned if innovation and investment fall.’
Alex Lee represents California’s 24th Assembly District, which covers the municipalities of Fremont, Newark, and Sunol in Alameda County and Milpitas and San Jose in Santa Clara County.
Lee was elected as an Assembly member in 2020.
Currently, he chairs the Environmental Safety and Toxic Materials Committee of the Assembly.
Previously, he worked on state-level public safety, climate change, and education policies for California State Senator Henry Stern and Assembly member Evan Low.
In addition to being chosen chair of the Assembly Committee on Environmental Safety and Toxic Materials, Speaker Anthony Rendon (D-Lakewood) appointed Lee to the following committees for the 2023-2024 legislative session: Budget, Subcommittee 4 on the Budget: State Administration, Business and Professions, Education, and Elections.
According to Forbes’ 2022 World’s Billionaires list, California is home to 186 billionaires, down from 189 the previous year but still considerably more than any other state. According to the ranking, New York has 135 billionaire residents while Texas has 67.
The modest reduction is attributed to the departure of a few prominent billionaires from the state. The founders of Luminar are Austin Russell, Orlando Bravo, and Stewart Butterfield, CEO of Slack. Butterfield moved to Colorado, while Russell and Bravo relocated to Florida.
Nearly half of the state’s billionaires are tech entrepreneurs. 116 of California’s billionaires reside in the San Francisco Bay Area, where the majority of this wealth is concentrated.
This includes the state’s wealthiest residents, Larry Page and Sergey Brin, cofounders of Google.
Southern California is home to around 67 billionaires, including 45 in Los Angeles, newcomer Rihanna, and Snapchat founder Evan Spiegel.