Legislature

Another effort to tax ‘extreme wealth’ in California is launched in the Legislature

Tesla CEO Elon Musk, the richest person in the world, moved his company’s headquarters from California to Texas, where taxes are lower. (Susan Walsh/Associated Press)

A handful of Democrats in the state Legislature are pushing again for an ‘extreme wealth’ tax in California, a move they say could net the state billions in revenue by raising taxes on households worth $50 million.

But if last year is any indication, the legislation faces an uphill battle.

Assemblyman Alex Lee’s (D-San Jose) new bill reintroduces a proposed tax hike for the state’s wealthiest residents, potentially affecting about 15,000 Californians, or 0.07% taxpayers. The proposal would apply a 1% tax on those with a net worth of at least $50 million and a 1.5% tax on those worth more than $1 billion.

The proposal is expected to bring in more than $22 billion a year in state revenue, according to an analysis by professors at UC Berkeley and UC Davis.

The bill, which would take effect next year for billionaires and in 2025 for eligible millionaires, would go to voters for approval in 2022 if passed by the Legislative Assembly. The proposal requires voter approval of a constitutional amendment because it would exceed state tax rate limits of 0.4%.

Lee’s legislation would not be a tax on income, but a tax on assets and “all wealth” whether it “was realized as income or not”, he said. Lee pointed to reports of some of the world’s wealthiest people avoiding income taxes as the reasoning behind the approach.

“There’s a whole other category of wealth where you only own things and can leverage your existing wealth further and we’ve seen how that can be avoided,” Lee said in an interview on Thursday. “We want the obscene ultra-rich to pay their fair share.”

California’s wealth gap is no secret: the state is home to the largest share of the nation’s billionaires and also the highest poverty rate.

Californians voted to raise taxes on those earning more than $250,000 a year in 2012 and extended that increase in 2016, but despite a Democratic supermajority in the Legislature, a wealth tax like Lee’s has is subject to criticism.

Last year, an identical attempt by Lee didn’t even make it to the legislative committee hearings.

A 2020 bill by Assemblyman Miguel Santiago (D-Los Angeles) that would have raised taxes for Californians earning at least $1 million to fund schools and other government services also failed. A pitch by Assemblyman Luz Rivas (D-Los Angeles) to raise taxes on wealthy corporations to benefit homeless Californians didn’t go far either.

Governor Gavin Newsom, who has spent much of his budget helping those in poverty, has also shunned the idea of ​​raising taxes on the wealthy.

California’s progressive tax structure already makes the state budget disproportionately dependent on the wealthy. Even in a pandemic that is crushing business, the state is facing another record budget and a surplus thanks in large part to capital gains income as the wealthy have gotten richer, leading to increased tax revenues.

But supporters of AB 2289, including the California Federation of Teachers, say that’s not enough.

“California billionaires have increased their wealth astronomically since the pandemic began, while ordinary working families struggle to pay their bills,” CFT Chairman Jeff Freitas said in a statement. “It’s time we took care of each other, and not just watched the billionaires fly through space.”

The California Taxpayers Association. was quick to oppose the new legislation on Thursday, saying it would drive high earners out and negatively impact state revenue.

Tesla chief executive Elon Musk last year moved the headquarters from Palo Alto to Texas, where taxes are much lower.

A nonpartisan California Policy Lab report found there was “little evidence that wealthy Californians are leaving in droves,” but the threat of such a loss remains.

“The new and unimproved proposal will cause wealthier Californians to pack up and move – a bad idea given that they make up a significant portion of our tax base,” the California Taxpayers Association president said. , Robert Gutierrez, in a press release. If top earners leave — and they’ll avoid the tax hike as well as the headache of having to assess everything they own, anywhere in the world every year — taxpayers left in California will have to pay more.

This story originally appeared in the Los Angeles Times.