Coupal: California is not East Berlin. A wealth tax in California would expedite the exodus.

Daily news reports on the great “California Exodus” are not just from conservative outlets. Left-leaning publications such as the Los Angeles Times and San Francisco Chronicle have recently reported on the outmigration of upper-income citizens who, even if not billionaires, still generate a lot of income tax revenue.

FILE — In a photo provided by Alex Lee for State Assembly 2020, Alex Lee poses for a photo at the Warm Springs Bay Area Rapid Transit station in Fremont, Calif., May 22, 2019. (Vanessa Hsieh/Alex Lee for State Assembly 2020 via AP)

This past week the California Legislature held a hearing on Assembly Bill 259 which would lay the foundation for the imposition of a wealth tax. The companion legislation to AB 259 is a proposed constitutional amendment that would, among other things, effectively sweep away Proposition 13’s limits on taxing property.

Fortunately, the idea that California would be the first in the nation to impose a highly unpopular wealth tax is so radical that the proposal was rejected by Democrats as well as Republicans on the Assembly Revenue and Taxation Committee. It didn’t take long for the Democrat chair of the committee to shuffle the bill to the “suspense” file where bad legislation goes to die.

Coincidentally, the wealth tax hearing occurred on the same day that Gov. Newsom released his proposed budget. Things got a little sparky during the presentation with Newsom pushing hard against the Legislative Analyst’s figure of a $68 billion deficit. Newsom contends that the deficit is “only” $38 billion. (But hey, what’s a $30 billion difference between friends).

Newsom saved his most animated criticism for those who highlight the state’s shortcomings, including the significant outmigration of California’s most productive citizens. He especially targeted the editorial page of the Wall Street Journal, which has never been reticent about commenting on the state’s well-deserved reputation for anti-business bias.

But to his credit, Newsom rejected the notion of a wealth tax – at least for now. For taxpayers, it matters little whether the governor’s stance is motivated by politics or a sincere policy position. Either way, we’ll take it.

The problems with the wealth tax proposal – even as half-baked as it is – are legion. But one issue should be especially troubling to anyone who believes both in fiscal restraint and basic constitutional freedoms. That is, could a wealth tax be applied to people who voluntarily leave the state for the specific purpose of avoiding California’s highest-in-the-nation income taxes? AB 259 contains a provision that applies the wealth tax to every “wealth-tax resident,” defined as someone who “is no longer a resident, and does not have the reasonable expectation to return to the state.”

The question here is not whether a resident of another state can be taxed when they have a “nexus” to California, for example income earned in California or owning property in the state. Rather, what about someone who no longer has any connection to California? The proposal to tax wealth on such people would likely be deemed to violate the U.S. Constitution’s Commerce Clause.

More fundamentally, an “exit tax” could be construed as an impairment to the right to travel. The U.S. Supreme Court affirmed in 1958 in Kent v. Dulles that citizens have a liberty interest in the right to travel: “[t]he right to travel is a part of the ‘liberty’ of which the citizen cannot be deprived without due process of law under the Fifth Amendment …”

Setting aside the practical and legal problems with this or any wealth tax proposal, a fundamental problem is the signal it sends to all productive California taxpayers as well as those in other states who might consider moving here.  California already has a horrible reputation for its treatment of taxpayers and businesses, why would we even consider another punishing tax?

Click here to read the full article in the OC Register

Blue-state leaders can’t see that their ‘progressive’ tax systems are bleeding their states dry

The latest Census Bureau data on population changes in America should have been a wake-up call to lawmakers in blue states and cities. The Census data provide even further evidence that “soak the rich” tax policies have incited a blue-state meltdown.

California, New York and Illinois all lost the most population last year. These states have nearly lost a combined 5 million people over the last decade. California and New York could both lose another three congressional seats by the end of the decade, and Illinois another two.

Did I mention that these are the three states with the highest taxes?

Is this just a coincidence?

Democratic governors evidently think so. This year, seven blue states are pursuing even higher tax rates on the top 1% of earners, despite the evidence that these policies are detrimental to their citizens.

One such state is Washington. Once an importer of talent and brainpower because of its no-income-tax status, the Dems who control all the levers of power in Olympia just enshrined a 7% capital gains tax, and the Democratic Washington Supreme Court strangely ruled it is constitutional. This is one of the highest taxes on the sale of assets in the country.

State Sen. Noel Frame (D-Seattle) wants a 1% annual tax on financial intangible assets — such as cash, stocks and bonds — over $250 million. And then they wonder why one of the world’s richest human beings, Jeff Bezos, has moved to South Florida.

In Vermont, Dems have just proposed raising their top income tax rate to more than 8%. Pretty soon Ben and Jerry will be the only rich people left in the state — and don’t be surprised if they move out, too.

Meanwhile, Maryland Dems are pushing a “millionaire tax” ($750,000 in income and above), a capital tax and a new corporate tax.

California just raised its top income tax rate to the highest in the U.S. — from 13.3% to 14.4%. The Golden State just moved past New York to reclaim the income tax top spot. They must be so proud. The Dems in Sacramento also expanded the state’s 1.1% payroll tax to include all income earners. The tax was previously applicable only to those making up to around $153,000 annually.

Meanwhile, Jonathan Williams, the chief economist at the American Legislative Exchange Council — an association of more than 2,000 conservative state legislators — reports that eight red states are cutting income taxes including Arkansas, Indiana, Kentucky, Montana, Nebraska, North Dakota, Utah and West Virginia. Oklahoma is set to cut rates this year to as low as 2%. Several of these states now have flat taxes, not multiple tier “progressive” rates. Every state on this list is a red state, except Connecticut.

What does all this mean? The blue-state deep thinkers can’t see that their “progressive” tax systems are bleeding their states dry. Or they don’t care.

Click here to read the full article in the OC Register

Wealth Tax Push Faces Uphill Fight

Sacramento lawmaker joins other blue states in new effort to get rich to pay fair share.

SACRAMENTO — Even in progressive California, passing a new tax on ultra-rich residents is a long shot. But a Democratic lawmaker is trying again, this time flanked by similar efforts in other blue states.

San Jose Assemblymember Alex Lee plans to introduce a bill that would impose new taxes on California’s “extremely wealthy,” at a rate of 1.5% on those worth more than $1 billion starting next year, and at 1% for those worth more than $50 million starting in 2026.

If passed, the tax would affect 0.1% of California households and would generate an additional $21.6 billion in state revenue, according to Lee.

“This is all in the spirit of making those who are not paying their fair share pay what they owe,” Lee said, pointing to a ProPublica report that exposed how the world’s richest people use legal loopholes to avoid paying income taxes, instead amassing wealth through assets like stocks that are not taxed unless sold.

Lee’s proposed tax focuses on a person’s “worldwide wealth” — not just their annual income — including such diverse holdings as stocks and hedge fund interests, farm assets and art and collectibles. It’s similar to proposals progressive Sens. Bernie Sanders (I-Vt.) and Elizabeth Warren (D-Mass.) championed during the 2020 presidential campaign, and to a plan President Biden floated last year that never passed Congress.

In the absence of a federal wealth tax, the State Innovation Exchange, a progressive nonprofit, and the State Revenue Alliance, which works with labor groups to call for taxing rich people, gathered a handful of states to create policy as part of the “Fund Our Future” campaign. The California bill was announced as a joint effort on Thursday alongside officials promoting similar wealth taxes targeting capital gains and “unrealized gains” in Connecticut, Hawaii, Illinois, Maryland, New York and Washington.

“States are leaning into their power. They’re reminding us that states are the laboratories of democracy,” said Charles Khan, who serves on the advisory committee for the State Revenue Alliance.

But the initiative faces an uphill battle in California despite the Democratic stronghold in the state Legislature. Similar attempts by Lee have failed before, and Gov. Gavin Newsom has shown no signs of supporting such a measure.

Newsom parted with his own party last year when he came out against Proposition 30 on the November ballot, which would have raised income taxes on the richest Californians and used the money to subsidize electric vehicles and suppress wildfires. The governor said that plan was “fiscally irresponsible” and criticized Lyft for bankrolling it, calling it a “cynical scheme to grab a huge taxpayer-funded subsidy” because ride-hailing companies must add more electric vehicles to their fleets.

Another measure that would have raised taxes on California’s richest to fund pandemic public health programs also lacked Newsom’s support, prompting organizers to keep it off the 2022 ballot.

In the Legislature, past attempts at a wealth tax have not made it far. Last year’s version was basically dead on arrival and did not get taken up for a vote in a single committee.

But Lee believes the legislation is more likely to succeed this time, in part because of California’s projected $22.5-billion budget shortfall. Revenue from the proposed tax would go to the state general fund.

“This is how we can keep addressing our budgetary issues,” he said. “Basically, we could plug the entire hole.”

Lee said the national push also helps thwart concerns that California’s richest will leave to avoid new taxes, as more states could do the same. “It’s a ‘they can run but they can’t hide’ situation,” he said.

A report by the nonpartisan California Policy Lab found that there’s “little evidence that wealthy Californians are leaving en masse,” but the threat of such a loss remains.

That’s because California’s progressive tax structure makes the state budget disproportionately dependent on the wealthiest residents, who are largely to thank for the state’s flush years even during the worst of the COVID-19 pandemic.

The bill is supported by the California Federation of Teachers and opposed by the California Taxpayers Assn.

California Taxpayers Assn. President Robert Gutierrez said the state should not jeopardize losing its top earners at a time of economic uncertainty. He also questioned the fairness and practicality of a first-of-its-kind tax on assets and total wealth.

“When would the state determine the tax on stocks, whose value can change dramatically from minute to minute? Would California’s tax auditors travel around the globe every year to attempt to locate and verify the value of one-of-a-kind artwork, vehicles, iconic Hollywood props and other items whose market value can’t be known with any degree of certainty?” he said. “Would wealthy individuals stay in California and wait for these questions to be answered?”

But Emmanuel Saez, an economics professor at UC Berkeley, said the initiatives can work successfully and make a significant difference in “restoring tax justice.”

“Our current tax system, both at the federal and state levels, fail to tax the enormous wealth amassed by billionaires. Billionaires can keep profits inside their businesses, and if they don’t sell their stock, they can avoid the individual income tax. If they retire in Florida and sell their businesses then, they will never pay income taxes in the state where they built their fortune,” he said. “Relative to their true economic income, billionaires end up paying a lower tax rate than the rest of us.”

Click here to read the full article here in the LA Times