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.
MP Alex Lee, Progressive a democratlast week introduced a bill in the California State Legislature that, beginning in January 2024, would impose an additional 1.5% annual tax on those with a “worldwide worth” of more than $1 billion.
Already in 2026, the tax rate will decrease. Those with a worldwide net worth of more than $50 million will have to pay an annual wealth tax of 1%, while billionaires will continue to be taxed at 1.5%.
Global wealth includes various holdings such as agricultural assets, art and other collectibles, as well as stocks and hedge fund interests.
Assemblyman Alex Lee (pictured), a progressive Democrat, last week introduced a bill in the California state legislature that would impose an additional 1.5% annual tax beginning in January 2024 on those with “worldwide wealth” over $1 billion from January 2024.
The legislation is a modified version of a wealth tax passed by the California Assembly in 2020, which the Democratic-led state Senate failed to pass.
The version just introduced includes measures that would allow California to tax residents’ wealth even years after they’ve left the state for another location.
The bill includes provisions to create contractual claims related to the assets of a wealthy taxpayer who does not have the cash to pay the annual wealth tax bill because most of their assets are not easily converted into cash.
This claim would force the taxpayer to file annually with the California Franchise Tax Department and later pay the proper wealth taxes, even if they moved out of state.
Last week, California was one of several blue states to release bills for new wealth taxes, along with Connecticut, Hawaii, Illinois, Maryland, Minnesota, New York and Washington.
Each state’s proposal contained a different tax approach, but all centered on the idea that the wealthy should pay more.
Lee has made public statements in support of the report.
“The working class has borne the tax burden for too long,” Lee tweeted. “The ultra-rich pay virtually nothing by building their wealth through assets. It’s time to end it.”
In a separate message, he tweeted: “Our modest 1% tax on wealth over $50 million would raise almost $22 billion a year – the same size of our deficit.”
Lee said the tax would affect 0.1 percent of California households and generate an additional $21.6 billion in state revenue that would go into the state’s general fund.
California has one of the highest taxes of any US state.
Supporters argue that the money could be used to increase funding for schools, housing and other social programs.
Lee hopes it can help close California’s $22.5 billion budget deficit.
California Governor Gavin Newsom delivers his budget proposal in Sacramento, California on January 10, 2023.
“That’s how we can continue to solve our budget problems,” he told the Los Angeles Times. “Basically, we could plug the whole hole.”
Some critics argue that the bill will have the opposite effect through high administrative costs and force people to leave the state in droves.
Jared Walczak, vice president of government projects at the Tax Foundation, told Fox News Digital: “The bill allocates $660 million a year in administrative costs alone, more than $40,000 to the future taxpayer, which gives an idea of how complex such a tax is. would be to administer.”
A recent analysis by James Doty, president emeritus and professor of economics at Chapman University, found that the 10 highest-taxed states lost nearly 1 in 100 residents through net inward migration between July 2021 and July 2022, when while the 10 states with the lowest tax rates increased by nearly 1 per 100 residents.
California lawmakers pushing the wealth tax believe they can “get around” the problem of residents leaving by “trying to tax people even after they leave the state,” said Patrick Gleason, vice president of communications for by the state at Americans for Tax Reform.
“It brings significant administrative challenges with respect to the valuation of assets and liabilities, high and distorted effective rates, among other challenges that make it an inefficient source of revenue,” Gordon Gray, director of fiscal policy at the American Action Forum, told Fox New Digital.
However, he, Gray and Walczak questioned the legality of this approach or called it unconstitutional.
Past studies have shown that the top 1% of taxpayers pay about 50% of state income taxes in New York, California and elsewhere.
This has led to questions about the level of damage to tax revenue a mass exodus of wealthy residents could cause.
Walczak noted that a wealth tax would cause big problems for California, joking that the people most worried about this type of law should be residents of Texas, where some high-profile Californians have moved in recent years.
“A wealth tax could be particularly devastating in California, home to so many tech startups, because the owners of promising businesses could be taxed on hundreds of millions of dollars in estimated business value that never materializes,” Walczak said.
“Very few taxpayers will pass on wealth taxes, but many taxpayers will pay the price. The only people who should genuinely love California’s wealth tax are those who work in the Texas Economic Development office.”
Pictured: Jared Walczak, vice president of government projects at the Taxation Foundation’s Center for Public Tax Policy
However, some argue that wealth taxes are vital to combating economic inequality.
Rep. Janelle K. Wilkins, D-Maryland, has proposed a bill that would require families to collect taxes on inheritances that exceed $1 million, rather than $5 million, as is the case today.
She said such ideas would gain more support now that the coronavirus pandemic has revealed a stark divide between rich and poor.
“It’s a pretty small amount of money that we’re leaving on the table,” she told the Washington Post.
Other proponents say that wealth taxes are small and do not significantly harm the rich.
However, experts point out that because the rates are calculated on net worth, not income, they have an extraordinary effect.
Walczak highlighted this in a recent blog post, using as an example a $50 million investment held for 10 years earning a 10% nominal annual rate of return with 3% annual inflation.
Excluding the wealth tax, this investment would yield a $46.5 million return in current dollars 10 years from now.
With a 1% wealth tax, that would have brought in $37.3 million, wiping out nearly 20% of the gain.
Wealth taxes “deeply cut into investment returns, harming the economy as a whole,” Walczak wrote.
“Average taxpayers may not care that the ultra-wealthy have less wealth. But they will certainly care if innovation slows and investment is reduced.”
Alex Lee represents California’s 24th Assembly District, which includes the Alameda County communities of Fremont, Newark and Sunola, and the Santa Clara County communities of Milpitas and San Jose.
Lee was elected in 2020 and currently chairs the Assembly Committee on Environmental Safety and Toxic Materials.
He previously worked on statewide policy on public safety, climate change, and education for California State Senator Henry Stern and Assemblyman Evan Lowe.
Last week, Speaker Anthony Rendon (D-Lakewood) appointed Lee to the following Assembly committees for the 2023-2024 legislative session: Budget, Budget Subcommittee 4: Public Administration, Business and Professions, Education and Elections.
According to Forbes’ 2022 list of the world’s billionaires, California is home to 186 billionaires, up from 189 a year earlier, but far more than any other state. According to the list, New York is home to 135 billionaires, while Texas has 67.
The slight decline is due to several high-profile billionaires moving out of the state, including Luminar founder Austin Russell, private equity head Orlando Bravo and Slack CEO Stewart Butterfield.
Russell and Bravo moved to Florida and Butterfield moved to Colorado.
Nearly half of the state’s billionaires come from tech. Most of this wealth is concentrated around the San Francisco Bay Area, home to 116 California billionaires.
That includes the state’s richest residents, Google co-founders Larry Page and Sergey Brin.
Some 67 billionaires live in Southern California, including 45 in Los Angeles, singer Rihanna and Snapchat founder Evan Spiegel.