New CA Bill Taxes 'Extreme Wealth,' May Raise $22 Billion A Year

SACRAMENTO, CA — California Democrats have introduced legislation that would tax what the measure calls "extreme wealth" in California.

Proposed Feb. 16, Assembly bill 2289 would apply to households worth more than $50 million. That represents about 0.07 percent of the state, or about 15,000 families.

Researchers at UC Berkeley and UC Davis in 2021 said such legislation would raise about $22.3 billion a year starting in 2023. About half of that money would come from the roughly 170 or so billionaires who call California home.

"The wealth tax would increase tax revenue, improve tax justice, and help reduce wealth concentration," the researchers wrote in the study.

The tax would be delayed until 2025 for implementation, though the billionaire tax would be applied in 2023.

A David Binder poll last year found that Californians overwhelmingly support a wealth tax, Assemblyman Alex Lee of San Jose said in a news release. Nearly 70 percent of residents polled supported a wealth tax on Californians worth at least $30 million.

While some worry such a tax could lead the state's wealthiest residents to leave for greener, less-expensive pastures, Lee disagreed.

"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. "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."

California's share of millionaires and billionaires has increased over the last decade, even as the state increased its millionaires tax 10 years ago. California is home to 12 percent of the country's population, but a quarter of all American billionaires now live in the state, as do 17 percent of all the country's millionaires, the study said. Income and wealth is more concentrated in California than in the United States overall, and this concentration has been growing faster.

How Tax-Friendly Is California?

Californians will be the first to bemoan the state's high taxes, but a new analysis found the state is more tax-friendly than many might think.

In a recent analysis by the personal finance site MoneyGeek, researchers looked at which states are most — and least — tax-friendly. MoneyGeek analyzed tax costs for each state to measure those with the lowest tax burden, considering sales, income and property taxes.

California received a "B" grade.

To assess each state's tax-friendliness, MoneyGeek estimated the state taxes paid by a married couple making the median national income of $82,852, with one child, and who own their $349,400 home.

The authors found that such a couple would pay an estimated $6,600 in taxes, or 8 percent of their income. That's good for the 17th lowest share in the country.

In Wyoming, the same family would pay an estimated $3,300 in taxes, or 4 percent of their income. That state saw the lowest share in the country and received an "A" grade.

Meanwhile, the same family would expect to pay about $13,900, or a whopping 16.8 percent of their income, in Illinois. With the highest share in the nation, Illinois received a failing grade.

But Lee, the San Jose Democrat, said that while California's income tax is successful at taxing most Californians, it's not as effective at taxing the ultra-wealthy. The richest Californians such as Mark Zuckerberg, Sergey Brin or Larry Page, can avoid the state's income tax as long as they don't sell their stocks.

"This is the main weakness of the CA tax system," the study found. "The wealth tax directly remedies this injustice by taxing all wealth, whether this wealth has been realized as income or not."

The researchers added: "With the wealth tax, billionaires would have to pay between 1% and 1.5% of their wealth in wealth taxes even if they do not sell their assets just like homeowners have had to pay annual property taxes based on the value of their homes."

Lee told the Los Angeles Times they want the "obscenely ultra rich" to pay their fair share.

“There’s a whole other category of wealth where you just own things and can leverage more wealth out of your existing wealth and we’ve seen how that can be evaded," he told the Times.

Teachers Support 'Extreme Wealth' Tax; Taxpayers Group Opposes

Other California Democrats support the bill, including Assemblymembers Wendy Carrillo (D-Los Angeles), Ash Kalra (D-San José), Luz Rivas (D-San Fernando Valley) and Mark Stone (D-Monterey Bay). All co-authored the legislation.

Rivas said it's time that top-earning millionaires and billionaires pay a fairer share of taxes to maintain government services.

"This is not a hypothetical conversation, on the federal level alone Jeff Bezos and Elon Musk paid absolutely no taxes," he said.

The legislation also earned the support of one of California's largest teachers unions.

Jeffery Freitas, president of the California Federation of Teachers, said in a statement that California billionaires grew their wealth "astronomically" since the beginning of the pandemic as working families struggled to pay their bills. His union is proud to sponsor the bill, which he said could help address water, wildfire, education and housing problems.

"It’s time we took care of each other, and not just watch billionaires fly into space," Freitas said.

The California Taxpayers Association, however, opposed the bill and said it could push some of the wealthiest residents to move out of state, hindering the amount of revenue the state collects.

Major Hurdles

Given the bill's history and the status of the state Legislature, the bill is unlikely to pass.

Lee proposed similar legislation in 2021 that never made it to a committee hearing. To boot, should it pass, voters would have to sign off on circumventing the state's 0.4 percent tax rate limit.