California moderate Democrats shut down 'wealth tax' proposal

California moderate Democrats shut down proposal to create a “wealth tax” on unsold assets soon after governor Gavin Newsom announced his budget and declared he would not be supporting such a tax to plug the state’s $68 billion deficit for the 2024-2025 fiscal year. To meet state needs, Newsom plans on cutting spending by $8.5 billion.

“Are you supporting a wealth tax? No. Yet again, why the hell do you keep writing about that?” said Newsom in a press conference announcing his budget. “Every year I say it. I don’t know what more we can say.”

AB 259, sponsored by Assemblymember Alex Lee, D–San Jose, would create an annual 1% tax on on the global wealth of state residents with worldwide net worth over $50 million, or $25 million if married but filing separately, and an additional 0.5% tax on residents whose net worth is over $1 billion, or $500 million if filing separately. Taxpayers would be required to disclose all assets, and be taxed based on the number of days spent in the state, even if part-time. The bill also clarifies “resident” includes “a temporary resident who is neither a resident nor part-year resident,” and creates the category of “wealth-tax resident,” or someone who has “wealth sourced to this state that has left this state and does not have the reasonable expectation to return to the state.”

Opponents, which included the California Chamber of Commerce, argued the bill would violate the constitutional right to travel by creating an “exit tax,” and that taxing nonresidents who “no longer have nexus with the state,” the tax “places a large, impermissible burden on interstate commerce” and potentially violates the Due Process Clause of the United States Constitution as in many cases there could no longer be a connection between the targeted taxpayer and California.

The bill died in the Assembly Committee on Revenue and Taxation as it faced its first hearing. Reflecting on his bill’s defeat and the governor’s call for increasing cost efficiency, Lee wondered why spending has to be cut when the new tax could provide $21.6 billion in new annual revenue.

“The top 0.01%, the billionaire and mega millionaire class, are largely ignored by our income based tax system,” said Lee in a public statement. “Why do we have to tighten our belts when they live large?”

Given that the governor’s budget solutions largely involve one-year deferrals and shifting of funds, if the current relative economic downturn extends another year or more, the state would likely have to engage in significant budget cuts, tax increases, or both to make ends meet.