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Democratic lawmakers in California are pushing a bill that would impose a new tax on the state’s wealthiest residents, even those who have already moved to another part of the country.
The Assemblyman Alex Lee, a progressive Democrat, presented last week a bill in the California State Legislature which would impose an additional 1.5% annual tax on those with a “world net worth” greater than $1 billion, starting in January 2024.
In 2026, the threshold for paying taxes would drop: those with a global net worth of more than $50 million would be hit with a 1% annual tax on wealth, while billionaires would still pay a 1.5% tax.
The World wealth extends beyond annual income to include diverse holdings, such as agricultural assets, art and other collectibles, and hedge fund stocks and interests.
The legislation is a modified version of an estate tax passed in the California Assembly in 2020, which the Democratic-led state Senate refused to pass.
Exit taxes are not new to 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 his annual estate tax bill because most of his assets don’t easily convert to cash.
This claim would require the taxpayer to file annual returns with the California Franchise Tax Board and eventually pay any estate taxes owed, even if they moved to another state.
California was one of several Democratic-led states that introduced bills last week to impose new estate taxes.
The other states were Connecticut, Hawaii, Illinois, Maryland, Minnesota, New York, and Washington. Each state’s proposal contained a different tax approach, but all focused on the same basic idea: the rich should pay more.
“The working class has borne the tax burden for far too long,” Lee wrote in a tweet. “The ultra-rich are paying little or nothing by accumulating their wealth through assets. 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. California has one of the highest taxes in the country.
Proponents argue that the money could boost funding for schools, housing and other social programs. Perhaps most importantly, however, Lee hopes she can help address California’s massive $22.5 billion budget deficit.
A wealth tax could be destructive, as up-and-coming business owners could be taxed on the estimated trade value of hundreds of millions of dollars.
“This is how we can continue to address our budget problems,” Lee told the Los Angeles Times. “Basically, we could plug the whole hole.”
However, experts counter that the bill will have the exact opposite effect through high administrative costs and cause an exodus of people fleeing the state.
“It brings significant administrative challenges with respect to the valuation of assets and liabilities, high and distorted effective rates, among other issues that make it an inefficient source of revenue,” Gordon Gray, director of tax policy at American Action, told Fox New Digital. Forum.
Others echoed this point, also arguing that a new wealth tax would likely drive many wealthy residents out of California.
“The proposed California estate tax would be economically destructive, difficult to administer, and would drive many wealthy residents, and all of their current tax payments, out of state,” Jared Walczak, vice president of state projects for the Tax Foundation, told Fox. NewsDigital.
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