https://www.wsj.com/articles/california-wealth-tax-bill-sacramento-democrats-gavin-newsom-f0c723b6
Democrats want to tax assets to fill the state’s $68 billion budget hole.
By
The Editorial Board
Jan. 9, 2024 6:34 pm ET
1840
California Gov. Gavin Newsom
Progressive ideas that originate in California have a habit of spreading. So it’s worth paying attention to legislation moving in Sacramento to establish a wealth tax on high earners and a bounty-hunter scheme for plaintiff attorneys to target alleged tax dodgers.
Democrats introduced the bill last winter, and it will get a hearing Wednesday in the state Assembly as lawmakers scrounge for revenue to fill a projected $68 billion budget hole. Gov. Gavin Newsom on Wednesday will also unveil his budget for the coming year. Democratic legislators are proposing a wealth tax as an alternative to spending restraint.
The bill would impose an annual excise tax of 1.5% on the worldwide net worth of every full- and part-year California resident that exceeds $1 billion, starting this tax year. Come Jan. 1, 2026, the state would tax wealth that exceeds $50 million at a rate of 1% each year, with an additional 0.5% tax on assets valued at more than $1 billion.
Part-time residents would be taxed on a pro rata share of their wealth based on the number of days they spend annually in California. The tax would also apply to nonresidents who have recently left the state. You can check out of the state, but you would still have to pay California’s wealth tax if you do.
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The wealth tax would apply to nearly all assets, including shares in a partnership, private-equity interests, artwork and financial assets held offshore. California’s Franchise Tax Board would value assets that aren’t publicly traded. That means private businesses located outside the state could be examined by the board’s auditors and appraisers.
It’s worth noting that Democrats exempted real property from the tax as a favor to their high-end real-estate industry and Hollywood donors. This carve-out would encourage the wealthy to shift more of their investments into real estate. Perhaps Democrats are trying to ameliorate the damage from local mansion taxes in San Francisco and Los Angeles on real-estate sales.
To spread the wealth around to plaintiff-bar donors, the bill would apply the state’s False Claims Act to wealth-tax records and statements. This means plaintiff attorneys could sue affluent individuals on behalf of the state for allegedly under-reporting assets. Plaintiff attorneys would be entitled to a share of the state’s recovery.
The wealth tax would raise an estimated $21.6 billion in revenue annually, assuming no wealth exodus in the state. Yet this is still far less than California’s budget deficit in this fiscal year. Nor does it cover the $27 billion increase in California’s Medicaid spending over the last four years. Medicaid spending this year will swell even more as the state expands eligibility to all undocumented migrants.
Meantime, California’s top effective marginal tax rate on wage income this year is increasing to 14.4% from 13.3% owing to a new law that removes the $145,600 wage ceiling on a 1.1% state employee payroll tax to fund expanded paid family leave. You almost have to wonder if Democrats are trying to drive away more businesses and high earners.
The wealth-tax bill reveals yet again Sacramento’s voracious appetite to levy new taxes to support more spending. The tax-and-spend ratchet never ends. But even California’s wealthy can’t pay for its ever-expanding welfare and government-worker obligations, so don’t be surprised when Democrats eventually target the middle class again too.
