Legislative Update

Lawmakers Introduce Union-Backed ‘Wealth Tax,’ but Say it Won’t Advance

state capitol

Assembly Member Rob Bonta hosted a teleconference August 13 to unveil legislation to “establish a first-in-the-nation net worth tax” that would cost California taxpayers an estimated $7.5 billion per year, but announced during the event that the bill (AB 2088) will not advance.

“The reality is this bill is not going to have a hearing and is not going to move through the process,” Bonta said, raising the question of why he and several coauthors triggered the state costs associated with processing and printing the amendments that include the tax provisions.

“For the benefit of accumulating excessive wealth in this state, there shall be imposed an annual tax of 0.4 percent upon the worldwide net worth of every resident in this state” in excess of $15 million for married taxpayers filing separately or $30 million for other taxpayers, the bill states.

“Worldwide net worth shall be the value of all worldwide property owned by the taxpayer on December 31 of each year,” the bill says. “Any transaction, a primary purpose of which is to reduce the valuation of a taxpayer’s worldwide net worth as of December 31, shall be disregarded. The Franchise Tax Board shall adopt regulations designed to prevent the avoidance or evasion of the tax imposed under this part.”

Worldwide net worth “shall not include any real property directly held by the taxpayer,” but “shall include the value of real property held indirectly, as through a corporation, partnership, limited liability company, trust, or other such legal form, except to the extent that such inclusion is prohibited by the California Constitution, by the United States Constitution, or other governing federal law.”

Sponsors’ $7.5 billion revenue estimate does not appear to account for likely changes in behavior, including current taxpayers who would move to another state if California attempted to tax their global assets, and potential Californians who would choose to start companies and make investments in areas where costs are significantly lower.

The bill is sponsored by the California Teachers Association, the California Federation of Teachers and the Service Employees International Union. Thirteen Democratic lawmakers signed on as coauthors of the bill.

The same unions and many of the same lawmakers are supporting the split-roll property tax initiative (Proposition 15) and the large personal income tax increase that was heard August 4 by the Senate Governance and Finance Committee (AB 1253, Santiago, which would increase California’s highest-in-the-nation top PIT rate of 13.3 percent to 16.8 percent, retroactive to January 1, 2020).

CalTax President Robert Gutierrez urged lawmakers to reject tax hikes that would make California even less competitive for jobs and investments.

“The state approved $9.2 billion in business tax increases in the new budget, but Sacramento politicians and special interests continue to seek income tax increases, property tax increases, a ‘headcount tax’ on in-state employees, and this new annual tax on money that was left over after all the other taxes were paid,” Gutierrez said. “Enough is enough. A very small number of Californians pay the vast majority of state income taxes. When the constant drumbeat for outrageous tax hikes drives them away, who will pick up the tab?”