Legislative Update

Lawmakers Propose Wealth Tax and PIT Increase

California State Capitol 1

State lawmakers proposed two major tax increases this week: a wealth tax targeting Californians with a net worth above $50 million and a personal income tax increase on annual income over $2 million.

The PIT increase was revealed this morning in amendments to AB 65, by Democratic Assembly Member Evan Low. The bill would create the California Universal Basic Income Program, funded via a 1 percent surcharge on income above $2 million beginning January 1, 2022. The bill would bring California’s top PIT rate – already the highest in the United States – to 14.3 percent.

The revenue generated by the tax hike would be used to provide monthly $1,000 payments to Californians who are at least 18 years old, are not incarcerated, have been residents of the state for the prior three consecutive taxable years and do not earn more than 200 percent of the per capita median income for the counties in which they reside.

The bill authorizes the Franchise Tax Board to adopt regulations to implement the program and prevents the FTB or state controller from using any part of the payment to offset tax liabilities or delinquent accounts.

As a tax increase, the bill faces a two-thirds vote threshold in the Legislature.

The wealth tax proposal was unveiled March 15 in a virtual press conference hosted by the lead author, Assembly Member Alex Lee. The proponents said the legislation, which is not yet in print, would impose a 1 percent tax on wealth over $50 million and a 1.5 percent tax on wealth over $1 billion.

Lee’s press conference also featured Assembly Members Luz Rivas, Miguel Santiago, and Lorena Gonzalez. The lawmakers were joined California Federation of Teachers President Jeff Freitas, entrepreneur Joe Sanberg, and University of California at Berkeley Economics Professor Emmanuel Saez.

According to several participants in the press conference, their tax increase is intended to make California’s wealthiest residents “pay their fair share.” If approved by at least two-thirds of the Legislature, the wealth tax would be placed on a statewide ballot in a measure that would need a simple majority vote for passage.

Saez, co-author of the book, “The Triumph of Injustice: How the Rich Dodge Taxes and How to Make Them Pay,” said the tax would raise approximately $22 billion per year – approximately half of which would be paid by 170 individuals.

“The mere introduction of a similar proposal last year was enough to increase the exodus of businesses, individuals and investments fleeing California,” CalTax President Robert Gutierrez said. “This damaging proposal encourages more Californians to follow in the footsteps of others who already moved out of California. Most other states are not threatening to tax their residents’ savings and personal effects – items that were purchased with money left over after paying California’s highest-in-the-nation income tax.”

Opponents of the two tax hikes noted that proponents’ revenue estimates do not appear to factor in the likelihood that some of the targeted individuals would move out of California and establish residence in a state with lower taxes.

Gutierrez noted that the state government is collecting billions of dollars more than expected under the current tax rates, and has a large reserve that got the state through a year of pandemic without having to cut funding for education or other important programs.

Governor Gavin Newsom and one of his top advisors have said the governor will not approve wealth taxes or income tax increases this year.