California legislators resurrect effort to tax 'extreme wealth'

A group of California lawmakers have reintroduced a proposal to tax extremely wealthy residents, a measure they say could bring the state billions in revenue by increasing taxes on households with a net worth of more than $50 million.

The proposal, reintroduced by Assemblymember Alex Lee, D-San Jose, would affect the top 0.07% of Californians, which equates to about 15,000 households. It would apply a 1% annual tax on worldwide net worth over $50 million and an annual tax of 1.5% for a resident whose worldwide net worth exceeds $1 billion.

“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 said in a statement when the bill was introduced Wednesday. “With a tax on the ultra-wealthy who pay a lower effective tax rate than the bottom 99%, we can invest in our schools, tackle homelessness, expand needed services, and much more.”

The tax for wealthy residents would be implemented in January 2025, while the billionaire-specific tax would be applied in 2023. If the bill is enacted, Lee estimated that the law would raise revenues by an estimated $22.3 billion per year.

According to Lee’s office, there are no specific earmarks for how the funds would be used at this time, but a portion of the revenue would fund a Wealth Tax Advisory Council, according to the bill’s text.

The council would be responsible for making suggestions to the Legislature regarding modifications to the wealth tax and would review the expenditure of revenues generated by the tax.

If passed by the state Legislature, the bill would require the approval of voters because it would amend the state’s constitution, which currently has a wealth tax rate limit of 0.4%.

Supporters of the bill say the tax is needed to ensure the wealthiest Californians do not continue to take advantage of the state’s tax codes.

“The ultra-rich have taken advantage of a tax system that allows them to profit from working-class Californians, a gross inequity that was exacerbated by the pandemic,” Assemblywoman Luz Rivas, D-San Fernando Valley, a co-author of the bill, said in a statement.

Rivas pointed to a U.S. Department of the Treasury report that says the wealthiest Americans avoid paying $163 billion in income taxes per year. He added that it’s time that “top-earning millionaires and billionaires pay their fair share in taxes to keep our government services funded for the very people they profit from.”

The California Taxpayers Association said Thursday that a similar wealth tax proposal brought forth last year “led many Californians to rethink living in California, just by virtue of being introduced.”

Lee introduced near-identical legislation last year, but it never received a committee hearing and died due to legislative deadlines.

The association noted that the “top 5% of earners in California account for about two-thirds of the total personal income tax revenue” collected by the state, adding that the tax would cause high-earners to consider leaving the state.

“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,” CalTax President Robert Gutierrez said in a statement.

“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,” he added.

The California Federation of Teachers (CFT), which is sponsoring the bill, said this week that the tax would give the state the ability fix several looming problems the state faces, including issues with wildfires, housing, education and water.

"California billionaires have increased their wealth astronomically since the beginning of the pandemic, while regular working families have struggled to pay their bills,” said CFT President Jeffrey Freitas said in a statement. He later added, "It’s time we took care of each other, and not just watch billionaires fly into space."

Lee’s bill is similar to a proposal unveiled by Sen. Elizabeth Warren in March 2021 – the “Ultra-Millionaire Tax Act” – that sought to impose a 2% annual tax on households and trusts worth $50 million to $1 billion, and a 1% surtax on households and trusts worth more than $1 billion.

If Lee’s proposal is approved by the State Legislature, voters will decide on the measure on the 2022 ballot.