California lawmakers push legislation to tax wealthy, even if they move out
California lawmakers are pushing legislation that would impose a new tax on the state’s wealthiest residents, even if they have already moved to another part of the country. Assemblyman Alex Lee, a progressive Democrat, introduced a bill in the California State Legislature last week that would impose an extra annual 1.5% tax on those with a “worldwide net worth” above $1 billion starting in January 2024. This bill is a modified version of a wealth tax approved in the California Assembly in 2020, which the Democrat-led state Senate declined to pass.
The proposed tax would affect 0.1% of California households and generate an additional $21.6 billion in state revenue, which would go to the state general fund. This money could be used to boost funding for schools, housing and other social programs, as well as help address California’s massive $22.5 billion budget deficit. However, experts argue that the bill will have the exact opposite effect through high administrative costs and by causing an exodus of people to flee the state.
Exit taxes aren’t new in California, but this bill also includes provisions to create contractual claims tied to the assets of a wealthy taxpayer who doesn’t have the cash to pay their annual wealth tax bill. This claim would require the taxpayer to make annual filings with California’s Franchise Tax Board and eventually pay the wealth taxes owed, even if they’ve moved to another state.
Advocates of the wealth tax argue that the money could boost funding for schools, housing and other social programs. However, experts counter that the bill will have the exact opposite effect through high administrative costs and by causing an exodus of people to flee the state. They argue that the proposed California wealth tax would be economically destructive, challenging to administer and would drive many wealthy residents — and all their current tax payments — out of state.
Past studies have shown that the top 1% of taxpayers pay about 50% of state income taxes in New York, California and elsewhere, raising the question of how damaging a mass exodus of wealthy residents could be to tax revenue. However, some proponents of wealth taxes argue they’re necessary to combat economic inequality. Marylan Democrat Delegate Jheanelle K. Wilkins has proposed a bill so that families would owe taxes on inheritances over $1 million rather than $5 million, as is the case today.
Wealth taxes “cut deeply into investment returns, to the detriment of the broader economy,” noted Jared Walczak, vice president of state projects at Tax Foundation. Average taxpayers may not care if the ultra-wealthy have lower net worths, but they will certainly care if innovation slows and investments decline.
California lawmakers are proposing a new wealth tax that would impose an extra annual 1.5% tax on those with a “worldwide net worth” above $1 billion, starting as early as January 2024. The bill is intended to generate an additional $21.6 billion in state revenue and help address California’s massive $22.5 billion budget deficit. However, experts argue that the bill will have the exact opposite effect by causing an exodus of people to flee the state and high administrative costs.
The proposed tax would affect 0.1% of California households and include measures to allow California to impose wealth taxes on residents even years after they left the state and moved elsewhere. This bill also includes provisions to create contractual claims tied to the assets of a wealthy taxpayer who doesn’t have the cash to pay their annual wealth tax bill.
Proponents of the wealth tax argue that the money could boost funding for schools, housing and other social programs, as well as help combat economic inequality. However, experts note that because the rates are on net worth, not on income, they have an outsized effect and could lead to a slowdown in innovation and investments.
Past studies have shown that the top 1% of taxpayers pay about 50% of state income taxes in New York, California and elsewhere, raising the question of how damaging a mass exodus of wealthy residents could be to tax revenue. It remains to be seen whether the proposed wealth tax will be approved and how it will ultimately affect the state’s economy.
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