The legislation, introduced by California Democratic Assemblymember Alex Lee, would create a 1.5% tax for a resident’s worldwide net worth that exceeds $1 billion in the 2024 and 2025 tax years. The bill would subsequently create a 1% annual tax for a resident’s worldwide net worth that exceeds $50 million and an additional 0.5% tax for worldwide wealth exceeding $1 billion.
“With this modest tax on the ultra-wealthy who pay a lower effective tax rate than the bottom 99%, we would have sustained investments in our schools, tackle homelessness, maintain and expand needed services, and much more,” Lee said in a press release. “We’ve been losing our lower and middle-income residents that are being priced out of this state because they can’t afford the high cost of living while shouldering the burden of paying for our roads, infrastructure, and schools all the while the ultra-wealthy doubled their fortunes during the pandemic.”
Unlike an income tax, under which an individual only pays a certain portion of new income, wealth taxes are based upon an individual’s assets. In the case of the California bill, current and former residents would have to pay based on the value of stocks, savings accounts, arts and collectibles, real estate, pension funds, financial assets held offshore, and several other assets.
The portion of an individual’s wealth eligible for the tax would be decided with an equation that weighs the number of years in which an individual lived in California out of the previous four years. New residents would have a numerator of zero and a denominator of four; in the next two years, the numerator would rise to one and two, respectively. For a taxpayer who is “no longer a resident” and “does not have the reasonable expectation to return to the state,” the numerator would be a fraction between zero and one “based on the percentage of days in the year the taxpayer was present in the state, plus the years of residence over the three previous taxable years.” The numerator would gradually be reduced in later years.
Joe Lonsdale, a venture capitalist and entrepreneur who recently moved to Texas from California, reacted strongly against the legislation during an interview with Fox Business. “This is really more a theatrical production going on in California,” he commented. “The state’s a total mess. And what they’re doing here is they’re signaling something crazy, and they’re probably going to compromise and tax the billionaires more some other way. But it’s really ridiculous.”
The proposal comes after residents of California were presented with California Proposition 30, a measure that would have increased taxes on personal income above $2 million by 1.75% to increase funding for zero-emission vehicle infrastructure and wildfire prevention. Voters rejected the proposal 58% to 42% during the midterm elections.
With an effective tax rate of 13.5%, California is among the most heavily taxed states in the country, according to an analysis from the Tax Foundation. Wealthy Americans already provide an outsized share of federal tax revenue, even when compared to the rich in other developed countries, according to another report from the Tax Foundation, which noted that the top 1% of earners paid more than 40% of federal income taxes in 2018.