A new wealth tax being pushed by California Democrats is the latest of several recent measures in the Golden State to tax the rich — and not the last one in the works.
Last week, Democrat Assemblyman Alex Lee introduced a bill in California that would impose an annual 1.5% tax on those with a ‘worldwide net worth’ above $1 billion, starting as early as January 2024.
As early as 2026, the threshold for being taxed would drop, and those with a worldwide net worth exceeding $50 million would be hit with a 1% annual tax on wealth, while billionaires would still be taxed 1.5%.
The legislation is a modified version of a wealth tax approved in the California Assembly in 2020 that the Democrat-led state Senate declined to pass.
The current version just introduced includes measures to allow California to impose wealth taxes on residents even years after they left the state and moved elsewhere.
According to experts, the wealth tax is one of several proposals in the state to target high-income earners.
‘The wealth tax California Democrats are now pushing is the sort of class warfare that California voters rejected last year when they voted down Proposition 30, a tax hike on high earners that, like the proposed wealth tax, was touted as a way to make the rich pay higher taxes,’ Patrick Gleason, vice president of state affairs at the Americans for Tax Reform, told Fox News Digital.
Proposition 30 was a 2022 ballot measure that would’ve raised the state’s top income tax rate — already the highest in the nation at 13.3% — beyond 15%. About 58% of voters rejected the tax hike.
Despite the resounding defeat, however, another effort to raise California’s top marginal tax rate has already made it onto the ballot for the 2024 election. The measure, officially titled the California Pandemic Early Detection and Prevention Initiative, would raise the top marginal state income tax rate from its current level to 14.05% on earnings above $5 million. The new top rate would remain in effect for 10 years.
The proposed tax hike made it to the ballot with the help of Guarding Against Pandemics, a nonprofit founded and led by Gabe Bankman-Fried, the brother of former FTX CEO Sam Bankman-Fried. The group dedicated millions of dollars to a campaign to get the statewide initiative that would tax California’s wealthiest residents and fund public health initiatives on the ballot, the Los Angeles Times has repored.
Gabe Bankman-Fried stepped down as director in November, three days after FTX filed for bankruptcy.
It’s unclear whether Democrat Gov. Gavin Newsom will support the 2024 measure. His office didn’t respond to a request for comment. The governor opposed Proposition 30.
In a separate proposal last year that never passed, lawmakers sought to add to the 13.3% rate a 1% surcharge to gross income of more than $1 million, 3% on income over $2 million, and 3.5% on income above $5 million.
However, Democrats in California haven’t just been pushing for tax hikes on the rich — many such efforts have been targeted at the entire state.
Last year, for example, lawmakers introduced a bill that would impose a 25% tax on the profits from a home resold within three years after being bought, the Los Angeles Times noted at the time.
Perhaps most striking, California legislators passed and Newsom signed into law major tax increases on employers right in the heart of the COVID-19 pandemic, in the summer of 2020. Among other measures, the law for the next three years suspends the ability of taxpayers to deduct net operating losses, which occur when one’s deductions for the year are more than their income for the year, and limits business tax credits to $5 million per year.
According to the California Tax Foundation, the law amounts to a ‘$9.2 billion tax increase over three years ($4.4 billion in 2020) on California employers by limiting and suspending tax laws that were intended to help struggling businesses and support California jobs.’
Despite such taxes, California faces a massive $22.5 billion budget deficit this year — after the state enjoyed a large surplus last year. Lee, who introduced the most recent wealth tax, hopes his bill can address the current deficit.
‘This is how we can keep addressing our budgetary issues,’ he told the Los Angeles Times. ‘Basically, we could plug the entire hole.’
Economists differ over the point at which raising taxes can become counterproductive in terms of raising government revenue. What’s clear, however, is that people are leaving high-tax states — including California.
Indeed, the 10 highest tax states lost nearly 1 in 100 residents in net domestic migration between July 2021 and July 2022, while the 10 lowest tax states gained almost 1 in 100, according to a recent analysis by James Doti, president emeritus and economics professor at Chapman University.
Meanwhile, the U-Haul Growth Index, which measured more than two million one-way trips last year, found that the only other state with more than 30 million residents, California, ranked last on the index as demand for trucks out of the Golden State spiked.
The exodus from California, particularly of high-income earners, could prove problematic for the government’s coffers as the top 0.5% of taxpayers pay 40% of California’s state income tax, according to recent figures.
H.D. Palmer of the California Department of Finance said in a recent interview with California Public Radio that in 2020, 1% of the total number of income tax returns that were filed were responsible for more than 49% of all the personal income tax that was paid in that year.