California is home to the largest share of the United States’ billionaires. Soon, lawmakers say they could have to pay up.
Assemblyperson Alex Lee (D-San Jose) re-introduced a tax on extreme wealth this week. It would tax people with a net worth of $50 million or more an extra 1%, and billionaires an extra 1.5%. That would affect about 15,000 households in the state. Lee says the tax would be on a person’s full wealth, whether that wealth has been “realized as income or not.”
The False Claims Act got its name from its authors’ research on income tax avoidance of some of the world’s richest people.
“The ProPublica analysis released last year revealed that the richest 25 Americans pay just a tiny fraction of their wealth in taxes, and some are able to pay little to nothing in income tax, with effective tax rates lower than the average American. By increasing their fortunes in assets such as stocks and property and then borrowing off those assets, they are able to avoid selling the assets and paying capital gains taxes,” explained Lee.
There are fears it could push some of those wealthy people out of California. For instance, when Elon Musk faced restrictions in California, he moved Tesla's headquarters to Austin, Texas and likely has most of his personal wealth parked there now too.
Assemblymember Lee argues that won’t be the case.
“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.”
Lee also says a vast majority of Californians support such a tax, with a David Binder poll clocking that number in at 70% of California residents.
While California does have the most billionaires, it also has the highest poverty rate. Before the pandemic, the Golden State’s poverty rate was about 16.4%,whereas the nationwide average was 13.4%. Those numbers have only worsened in the pandemic.
A UC Berkeley and UC Davis study estimates the wealth tax would bring the state about $22.3 billion a year. Right now, there’s no guidelines for how that money would be used.
The bill would need voter approval, since it exceeds the state’s tax rate limit, which right now is set at 0.4%. Last year, Lee’s attempt at the same tax didn’t even make it to committee.
Other similar efforts have also failed repeatedly, and even California Governor Gavin Newsom has avoided the issue. The California Taxpayers Association has come out against the bill.
If it passes, AB 2289 would kick into effect in 2023 for billionaires and in 2025 for 50-millionaires.