Under the proposal, the tax rate would be set at 0.4 percent of net worth, excluding any directly held real estate, exceeding $30 million for joint and single filers and $15 million for those who are married filing separately.
The move comes as the state grapples with a huge budget deficit in light of the coronavirus crisis.
This would come on top of a “millionaires’ tax” that was proposed last month. Under that bill, AB1253, surcharges of 1 percent would be added to single or joint incomes of between $1 and $2 million, 3 percent on $2 to $5 million income, and 3.5 percent on income higher than $5 million. This would bring the top rate up to 16.8 percent in California; it currently stands at 13.3 percent there and is already the highest in the country.
Those who are subject to the wealth tax will be required to report it to the Franchise Tax Board with their income taxes. They would also need to report all of their assets, stocks, interests in hedge funds, bonds, savings, futures, collectibles, pension funds, mutual funds and offshore financial assets. In that respect, the tax on wealth is also a serious invasion of privacy as those who are subject to it will have to disclose all of their belongings.
In New York, legislators floated a similar idea in the form of a capital gains tax placed on New Yorkers who have $1 billion or more of assets. Governor Andrew Cuomo expressed reservations that such a move would drive wealthy individuals out of the state.
“Because if you take people who are highly mobile, and you tax them, well then they’ll just move next door where the tax treatment is simpler,” he said.
That’s exactly what is going to happen in California should the proposed tax be enacted into law.
California Taxpayers Association President Robert Gutierrez pointed out that a very small number of taxpayers in California pay an overwhelming majority of the state’s income taxes.
“When the constant drumbeat for outrageous tax hikes drives them away, who will pick up the tab?,” he asked.
Many countries have abolished wealth taxes because they don't work
It’s something that has already been seen in other countries. In fact, more than a dozen countries in Europe used to have wealth taxes but most have since repealed them, and California could learn from their experiences.
The French wealth tax, which was put in place back in 1982, was repealed in 2017. The government estimated that year that 10,000 people with 35 billion euros in assets had left the country within the past decade and a half for tax reasons. The government lost revenue as a result on other taxes these people would have paid. French economist Eric Pichet calculated that although the wealth tax raised roughly 3.5 billion euros per year, the government lost 7 billion a year through reductions in other taxes.
Sweden’s wealth tax was abolished in 2007. It was long blamed for massive capital flight from the country, the low level of investments by Swedes in startups, and the disappointing entrepreneurial activity there compared to other European nations. The abolition of the wealth tax was aimed at making more resources available for early-stage investments and venture capital.
Why do these lawmakers think California will fare any differently? Wealthy people are very much in a position to pick up and relocate on a whim, and that is exactly what they’re going to do – and bring all of their tax dollars with them.
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