A group of Democrats in the California Legislature are again pushing for an “extreme wealth” tax in the state, a controversial measure they say could extract billions of dollars from the wealthiest Californians.
Assemblyman Alex Lee’s (D-Calif. 25) new bill would affect about 15,000 California households with a 1% annual tax on those with a net worth of at least $50 million and a 1.5% tax on those with a net worth of more than $1 billion.
According to an analysis by professors at UC Berkley and UC Davis, the tax is expected to generate more than $22 billion a year in state revenue.
Other attempts to introduce similar legislation have previously failed. Legislator Lee himself tried to introduce a nearly identical bill last year but failed to reach the quorum needed for a committee hearing at that time.
Even if the proposal passes the Legislature, it must find voter approval in 2022 by amendment, as it would exceed the state’s 0.4% tax rate limits.
California is home to most of the wealthiest people in the United States, and critics of the initiative fear it will send millionaires and billionaires out of the state.
For example, Elon Musk, whom Forbes ranked as the richest person in the world, moved the Tesla company’s headquarters from Palo Alto to Texas, where taxes are lower.
However, the promoter of the project rejected the approach. Lee said, as quoted by Fox 5: “While some say California is driving away higher-income residents, the opposite is true—we’ve actually been losing lower and middle-income residents that are being priced out while continuing to gain higher-income residents.”
As an argument to explain his approach, the lawmaker cited reports of some of the world’s wealthiest people avoiding income taxes.
“There’s a whole other category of wealth where you just own things and can leverage more wealth out of your existing wealth, and we’ve seen how that can be evaded,” Lee said in an interview Thursday, according to LA Times reported. “We want the obscenely ultrarich to be paying their fair share.”
But California’s current tax structure already makes the state budget disproportionately dependent on the wealthiest, so for many, the risk of losing the biggest taxpayers is latent.
California Taxpayers Association President Robert Gutierrez warned in a statement to the LA Times, “The new-and-not-improved proposal will prompt more wealthy Californians to pack their bags and move—a bad idea considering they represent a major portion of our tax base.
“If high earners leave—and they will, to avoid the tax hike, as well as the headache of having to annually appraise everything they own, anywhere in the world—the taxpayers left in California will be asked to pay more.”
If passed, the bill would take effect in 2023 for multimillionaires and in 2025 for those with a net worth of more than $50 million.