We examined the wealth tax proposal floated by California Democrats, and our first impression was, what’s all the buzz?
One commentator observed that a person with $31 million in assets – just north of the thirty-mil threshold for the proposed levy – would end up with a bill of only $4,000. Hardly a sum to disturb the refined sipping of one’s Screaming Eagle Cabernet, it seems.
Ah, but we catch a whiff of the horned one’s brimstone swirling amid the state’s fragrant jasmine… Even I am lost in that metaphor, so let me clarify: the devil’s in the details. The bill under consideration in the California legislature, and whether it passes or not, are not vital in themselves. Intent and justification, and what we can expect down the road, are the heart of the affair.
The Democrats have cast their gauntlet: taxes must rise on the affluent. A wealth tax, potentially the first in US history, seems a good idea. For wealthy residents, it’s the horizonal smoke cloud: the wildfires may not be dropping hot ashes into your pool just yet, but signals suggest it’s time to load the Rover and head out of the hills.
In fullness of fact, the threat is double-barreled. At 13.3%, California already hosts the highest state tax rate in the Union, with legislators mulling a top-up of 3%. The proposed wealth tax is merely an inedible cherry atop an already sickening confection, at least to its wealthy samplers.
Brass tacks: AB 2088, the brainchild of Assemblyman Rob Bonta (D-Oakland), would introduce a wealth tax of 0.4% on individuals holding assets with a net worth exceeding $30 million; only around 30,000 Californians would be affected. As taxes go, it isn’t so bad. Perhaps wealthy Californians should just focus on more pressing matters, like whether Cartier offers sustainable substitutes for plastic drinking straws. I base this jibe on an actual conversation with a rich Californian, so please don’t judge me.
To my stomach, the wealth tax bill induces queasiness when I hear its justification. In the preamble, the legislation’s purpose is defined as “for the benefit of accumulating excessive wealth in this state.” The clarity of the bill’s language is of the sooty-window variety, but I believe its framers are suggesting that ‘excessive’ wealth’ litters the state, and hence begs scooping up.
If a state agent demanded your wallet and deemed some of your cash excessive, what would you say? Objective determination is impossible, of course. If one had a billion seemingly excess dollars, but declared: I shall launch a private space company and generate thousands of high-tech jobs, what public interest would be served by its confiscation?
We’re clearly semaphoring an actual Californian, who’s publicly declared that he’ll leave the state if tax hikes enter the shenanigan sphere. Meanwhile, if I have nine bucks, and all I can dream is ‘one more, and that bargain jug of chianti is mine’, I’m loaded, friends, if not yet quite literally.
Assemblyman Bonta additionally cites inequality as justification for his bill. To my mind, income inequality is the chief domestic disturbance in our country, so despite my visceral anarchism and love affair with finance, that temptress, I’m listening.
Mr. Bonta’s reasoning, I’m afraid, does not impress on consideration. Inequality: it’s all the fault of the coronavirus, he says. California was apparently doing fine before the pandemic, but now, with the heaviest costs falling on middle and lower-class citizens, it’s time for the rich to pay up.
“In times of crisis, all Californians must step up and contribute their fair share. Asking these well-resourced Californians to give a little more to keep our people working and support our most vulnerable is the right thing to do,” says Bonta.
As I said, the bill is partially justified, and I choose that word carefully, by moral arguments, but I suspect simpler motives: Cali-Caesar needs to pay the coronavirus bill, and someone must render unto him. You million- or billionaires have plenty, so pony up, or we’ll turn the masses on you.
Supporters estimate that the proposed wealth tax could raise $7.5 billion a year for California. Opponents point to the already rapid flight of tax and high-cost-of-living refugees. As in the case of Mr. Musk, if wealthy individuals feel they’re being fleeced – and they can’t help but worry over the unbusinesslike, morally tinged, hint of social-engineering in comments made by wealth tax supporters – less rapacious states, Texas, for one, may start looking like home.
If you posit paranoia, consider the wealth tax bill’s provisions for enforcement: anyone leaving California in the wake of its passage will still be on the hook. Bonta explains it like this: you earned the money here; you owe us the tax – for ten years. We might ask: if a billionaire who earned her boodle in New York moves to CA, would her assets be wealth-tax exempt?
I concede one point: we all must pay taxes. Gerald R. Ford-class aircraft carriers aren’t free, after all. When I earn money, though, to whom does it belong? I argue that it is mine, no matter the state, and it travels with me. In the US, the people are sovereign, not the state, and in our country, principle is everything – the Founding Fathers told me so.
AB 2088 is unlikely to pass in its current form. Even the state’s governor questions its provisions. The legality of chasing tax exiles into other states is uncertain and would certainly be challenged in court, although the federal government follows the same path with Americans who renounce their citizenship: technically, they’re on the tax hook for 10 years, though enforcement is likely difficult.
If California needs to pay pandemic costs, let the government propose a reasonable bill. Let the rich pay more – why not? – but moderate your terms, please. Long term, class-war rhetoric is unlikely to satisfy anyone, and once the November elections are done, we hope to see it slowly pass away.