California Democrats Considering New Wealth Tax — Including People Who Have Moved out of State

California lawmakers are pushing for legislation that would force a new tax on the state’s wealthiest residents, even if they have already moved to a different part of the country.

Progressive Democrat Assemblyman Alex Lee introduced a bill last week in the California State Legislature that would impose an extra annual 1.5% tax on individuals with a “worldwide net worth” over $1 billion, beginning as soon as January 2024. 

As soon as 2026, the threshold for being taxed will be lower. Those with a worldwide net worth exceeding $50 million would be leveled the 1% annual wealth tax, while billionaires would remain taxed at 1.5%.

Wealth worldwide extends beyond annual income and includes diverse holdings, including arts, farm assets, hedge fund interest, stocks, and other collectibles. 

The legislation is an adjusted version of a wealth tax approved by the California Assembly in 2020. The Democrat-led Senate declined to pass it at that time.

The present, recently-introduced version includes measures that allow California to permit California to impose taxes on wealthy residents for years after they leave the state or move elsewhere. 

While exit taxes aren’t new in California, the bill also includes provisions to create contracts to tie the assets of wealthy taxpayers who don’t have the cash to pay their annual wealth tax bill, as most assets aren’t turned easily into cash. The claim would make taxpayers file annually with California’s Franchise Tax Board and eventually pay the owed wealth taxes, even after they’ve moved from the state. 

California is one of several blue states unveiled bills last week to impose new wealth taxes. Other states were Hawaii, Maryland, New York, Washington, Minnesota, Connecticut, and Illinois. Each state proposal included a different tax approach, but all centered on the idea that the rich should pay more. 

Lee maintains wealthier residents should pay more

Lee’s office did not provide further details on the proposal, but he has made previous public statements that echo the message that wealthier residents should pay higher taxes

“The working class has shouldered the tax burden for too long,” Lee tweeted. “The ultra-rich are paying little to nothing by hoarding their wealth through assets. Time to end that.”

According to Lee, the tax would only affect 0.1% of California households and generate another $21.6 billion in state revenue, which would be put into the state general fund. California is one of the states with the highest taxes of any state in the country.

Promoters of the bill argue the money could further boost housing, social programs, and school funding. Lee hopes it could address California’s massive $22.5 billion budget deficit.

“This is how we can keep addressing our budgetary issues,” said Lee to the Los Angeles Times. “Basically, we could plug the entire hole.”

However, some experts say the bill could have the opposite effect by causing an exodus of people fleeing the state and through high administrative costs.

“It brings significant administrative challenges with respect to asset and liability valuation, high and distortionary effective rates, among other problems that make it an inefficient revenue source,” said the director of fiscal policy at the American Action Forum, Gordon Gray.