Got some money? Well, whatever you do, don’t bring it to California. For that matter, don’t leave the state either. California is on the verge of passing a new tax which would apply to people even after they move out of the state.
As an example: If you lived in California but move to Oregon, for the next ten years after you move California will still tax your earnings. So now will you not only be paying Oregon income tax, you’ll also still be paying California taxes on top of that.
In perhaps the craziest twist of all, the law could even apply to people who have spent as little as 60 days in the state of California. Keep those vacations short or you’ll end up spending the next 10 years paying California for the privilege of visiting there.
For now this tax only applies to people making over $30 million a year, but taxes like this have a way of filtering down to the middle class eventually. So to keep you on your toes, below is a complete breakdown of how the “California Wealth Tax” will work…
California State Assemblyman Rob Bonta, along with a group of a dozen California lawmakers, has introduced this legislation that will be the first of its kind. The California Wealth Tax or AB 2088. This new tax would apply a 0.4% tax to taxpayers whose net worth exceeds $30 million, which equates to roughly 30,400 people in the state.
It’s not the first time legislation of this nature reared its ugly head. Back in 2011 the consulting company BCG said the only way to combat the out of control spending and mounting debt was to implement a wealth tax. Their suggestion was shot down quickly though it still remained in the memory banks.
“The California Wealth Tax would add critically needed revenue for California by creating a more equitable tax structure,” said Bonta per his website. “Families are hurting right now. COVID-19 has only made matters worse. 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.”
Because of the COVID pandemic California, as with most other states, has been forced to shut down many businesses and other parts of its economic pull causing a $45 billion budget deficit. In attempts to offset this, Governor Gavin Newsome recently signed the 2020-2021 state budget into law that allows for a $134 billion General Fund spending plan that attempts to manage all these shortfalls. This budget all includes a $14 billion in spending cuts and delayed payments that will be offset if the state received its federal funding. If enacted, the California Wealth Tax would raise some $7.5 billion that would go into the general fund.
“The extreme wealth gap that plagues our state pre-dates the COVID-19 pandemic,” Assemblymember Lorena Gonzalez (D-San Diego) said. “Now, middle-income and working-class folks are faced with being unemployed or they’re forced to return to jobs that put them at a higher risk of getting sick. Our economy has left working people behind for too long. I’m proud to joint author this proposal to tax extreme wealth in our state to help families that are struggling to stay afloat in this economic downturn.”
“We have people better off than they were before the pandemic, and others who are on the brink of losing it all,” Assemblymember Miguel Santiago (D-Los Angeles), a joint author, said. “We cannot just sit back and turn a blind eye. We are at a very critical point in time where if we don’t start putting dollars where our values are, we will see unprecedented devastation in our communities. We need people to start pulling their own weight here, and it starts with the ultra-rich.”
This all sounds good, right? Throw a tax on the ultra-wealthy, have them pay for the state’s mismanagement. Seems straightforward. Of course, though, there is a twist to this proposed tax.
While the plan is to tap into the top .15% moneymakers in the state, this tax, as it is being introduced, will not only affect those living in the state, but if one decides to move OUT of the state, the tax is set to follow you for ten years, wherever you may live.
Bonta says the tax will be implemented in a “phased-in approach”, making sure California gets what it feels is coming to them. “If you move in Year One, 90% of the tax bill applies.” From there, it drops 10% each year until after ten years you reach zero.
While speaking on Neil Cavuto’s Cavuto: Coast to Coast, the host pressed Bonta on the legalities of the proposed law. “For ten years, the wealth was accumulated during their time in California … and that is what we’re proposing in our bill. We believe we can do that, certainly we’re open to dialogue and discussion as we move the bill forward, but we think it’s a sound approach and has a strong legal foundation,” Bonta told the host.
Cavuto then told Bonta that they are making “prisoners of California” — “[Y]ou’re not letting them leave, if you say you leave I’m still going to zoom you.” Bonta replied by saying the new law addresses the fact that those leaving the state with their money recognizes that they made their money IN California. Which leads to another kicker in this proposed bill. Anyone coming into California with that net worth of $30 million will be taxed in reverse. So, if you want to bring your money into California, the new law will state that you’d be taxed 10% the first year, 20% the next and on up until year ten. IT does go to note, though, that this tax rate being asked for is a 0.4% rate. The percentages taken will be from the 0.4% rate.
This proposal is already being questioned. Peter Schiff, CEO and chief global strategist of Euro Pacific Capital Inc., an economist, and financial broker/dealer as well as radio host, has come out swinging on this matter. His tweets pretty much say it all.
He also went on in another tweet, taking a shot at those who may decide to go to college in California.
Bonta tried to inject some “good news” into this proposed tax law. “Directly held real property, and mortgages and other liabilities secured by directly held real property,” will still have to be reported, but they would not be considered when calculating the taxpayer’s worldwide net worth. “Real estate would be exempt from the wealth tax because it’s already subject to property tax, at a higher rate,” Bonta said. How nice of them.
So now, in a case of damned if you do and damned if you don’t, do you? The first question is, who would want to remain in a state that continues to raise taxes, regardless of income? Secondly, who in their right mind would want to come to a state that is doing this to their population? More questions to follow.
It’s worth noting that these are the same Assembly members who put this proposed bill together. Joints authors of the California Wealth Tax (AB 2088) are Assemblymembers Rob Bonta, Wendy Carrillo, David Chiu, Lorena Gonzalez, Ash Kalra, Miguel Santiago, Mark Stone, Phil Ting, and Buffy Wicks. Senator Nancy Skinner and Assemblymember Kansen Chu are principle coauthors. Assemblymember Reggie Jones-Sawyer, Senator Maria Elena Durazo, and Senator Lena Gonzalez are coauthors.