The policies being inflicted on the 40 million residents in California are so popular that Gov. Gavin Newsom (D) is going to punish those who are fleeing the state. The card-carrying members of Gavination are proposing a wealth tax to help plug the gaping hole in the budget deficit, ignoring the mountain of evidence proving that these schemes are not successful. Once The Golden State’s latest endeavor becomes law, economic experts can add California to the list of examples of why financial penalties for success and disappointment never work.
Inside the California Wealth Tax
State lawmakers are advocating legislation to institute a new levy on California's wealthiest residents. Alex Lee, a progressive Democratic assemblyman, submitted a bill to slap an additional 1.5% tax on individuals with a "worldwide net worth" of more than $1 billion, effective January 2024. Two years later, the threshold would be lowered to $50 million, and the wealth tax would be reduced to 1%, although billionaires would still be slapped with a 1.5% penalty.
The most notable aspect of this legislative effort – California Assembly Bill 259 – is the potential implementation of wealth taxes on residents even if they left the state and relocated somewhere else by submitting annual filings to the Franchise Tax Board. Considering that approximately 350,000 people are fleeing the state annually – it even lost a congressional seat! – California bureaucrats will be busy chasing down households waving goodbye to the jurisdiction.
The public policy proposal, which is an updated version of a 2020 bill, maintains ten sponsors and would ensure that worldwide wealth would include income, art, farm assets, stocks, and anything else that might contribute to a person's net worth. Supporters project that it would generate $21.6 billion in state revenue that could help address the enormous $22.5 budget shortfall.
"The working class has shouldered the tax burden for too long. In CA, we’ve introduced #ACA3 + #AB259 to tax the ultra rich & invest in all Californians," Lee tweeted. "The ultra rich are paying little to nothing by hoarding their wealth through assets. Time to end that."
The Economics of a Wealth Tax
Proponents of the legislation argue that it will only impact 0.1% of households. But, unfortunately, the state will continue to bleed money because many affluent residents and corporations are abandoning the punitive policies. This means that California will eventually lower the wealth tax threshold – as it already did ahead of time – to add funds to its coffers. Individuals and companies presently suffer from the highest level of taxes in the country, including a 1% surcharge for incomes above $1 million.
Gavin Newsom (Photo by Mario Tama/Getty Images)
Wealthy residents possess the means to move to a different low-tax jurisdiction. This is troublesome for the entire state because studies have revealed that the top 1% pay about half of California’s taxes, which is true of many other jurisdictions nationwide. When officials cannot target the rich, they will eventually hone in on those making under $1 million.
Another challenge for California to overcome would be the issue of capital flight. For years, the data have shown that nations and states or provinces that imposed a wealth tax suffered from this problem. As a result, there is less investment and innovation as entrepreneurs and companies abandon these places and move their capital to somewhere that facilitates a far more competitive environment. In the 1990s, a dozen OECD members adopted wealth taxes. By 2020, many of these same nations repealed these levies. But this also leads to two situations. The first is that this explains why there is a concerted effort worldwide to clamp down on this kind of behavior, such as the US-led global corporate minimum tax. The second is that these folks fleeing from the same progressivism tend to bring their politics to the states where they relocate, creating a vicious cycle.
Leftists champion wealth levies to create a more equitable society where the funds are redistributed to education, health care, and other government-approved programs. At issue, however, is that they target families that might have spent their entire lives working, made the right decisions, and accumulated their fortune through saving, investing, frugality, and fiscal responsibility. How would it be equitable to punish a 68-year-old retiree who worked 60 hours a week, did not spend enough time with his family, and brought a brown bag lunch daily to the office?
And then there is the legality of it all. Some experts have suggested that the exit tax portion of this bill is unlikely to become reality. Scott Cosenza, Liberty Nation’s legal affairs editor, explained:
“It's hard to fathom how California's proposed exit tax is constitutional. It impinges on the right to travel and violates multiple tenants of the 14th Amendment. These include the right to citizenship of the state of one's residency and the privileges or immunities clause. I would expect the federal courts to strike this down, supported by the Attorneys General of low-tax states."
The Age of Envy
The rich have propped up the United States. They carry the burden of covering everyone else's tab. But the politicians always want a little bit more under the guise of paying their fair share. This initiative generally works because it impacts only some people. There is something else, too. Society has been infected with the moral malady of envy and resentment, a disease that allows reckless taxation and regulation to seep into the bloodstream of policymaking. Not only do most tax-and-spend plans result in economic destruction, but they also lead to social decay and a societal wasteland.
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