California proposes far-reaching wealth tax

California Assemblyman Alex Lee (D-San Jose) proposes a sweeping wealth tax on worldwide assets. What’s more, his bill could tax people for years after they leave the State.

Latest California wealth tax proposal

Lee’s bill, AB 259 (H/T: LegiScan) imposes a tax on the excess worldwide net worth of any California resident. Beginning in 2024 a 1.5 percent tax would apply to a net worth over a billion dollars. But starting in 2026 it would catch 1.0 percent of the excess over fifty million dollars, plus an additional 0.5 percent of the excess over a billion.

The reportage on this bill has created confusion, on whether and under what circumstances California proposes to tax the wealth of a previous resident who has moved out-of-State. Fox News clarifies this issue. Persons having wealth in this range normally do not hold the cash to pay an annual tax. So the law allows them, instead of liquidating assets to pay the tax, to enter into contracts with an existing body, the California Franchise Tax Board. Such contracts become final, and put the taxpayer on the hook whether he subsequently stays or moves out.

But this bill raises a privacy concern that Fox (and the Associated Press) missed. A new Wealth Tax Advisory Council may request information from the CFTB and other income tax authorities. Ostensibly this would be to serve the Council’s mission to determine a level of “adequate funding” to cover the administrative costs of this tax. But even the University of California may also request this information.

Other States proposing wealth taxes

The Associated Press listed California among eight States now considering bills to tax their wealthiest residents more. Other States on that list are New York, Illinois, Hawaii, Maryland, Minnesota, Washington and Connecticut. Not all these states propose to tax excess net worth. Connecticut, for example, proposes to hike taxes on capital gains and personal income.

Proponents of these taxes harp on wealth equity – meaning that it is not equitable for one person to be fabulously rich and another poor. But Gary Rose, professor of political science at Sacred Heart University in Fairfield, Connecticut, threw cold water on the notion.

This “tax the rich” has been around before and it’s present again. And quite frankly, it never got traction before and I seriously doubt there’s an appetite for it now.

And why not? Because:

I think if you polled the American people, a lot of people want to get rich themselves and it’s part of, if you will, the American Dream. We’ve never really had in this country a tremendous appetite for taxing the rich because getting rich … is really part of who we are and what separates this country from many Democratic socialist countries.

In other words, in America people perceive that they can move up, and plan to move up.

Move up – or move out?

But California is different. It faces a budget deficit of $22.5 billion. Asm. Lee harps on that. But other supporters want to use any revenues to spend more – on schools, housing, and “social programs.” And tax-the-rich Democrats everywhere don’t want to admit that people do move out of their States to avoid State taxes.

That wasn’t always the case. The more salubrious the climate, the higher the taxes – that was the rule in the last century. But today California has ruined everything. Tax and other policies can only get so crazy before people will move out. In the last Census, so many people moved out of California to Texas that they effectively took a House seat with them. California had never before lost representation in the House of Representatives.

Nor is California the only State losing people (and House seats). Prof. James Doti at Chapman University reported that people are moving now, after the Census. The top ten taxing States lost nearly one percent of their residents. And what they lost, the bottom ten taxing States gained.

And tax experts now say the Lee proposal would accelerate the exodus, in addition to imposing administrative costs that would cancel out much of the revenue the tax would collect. That’s even assuming that the bill passes, and the law would withstand Constitutional scrutiny.