California Could Become the First State With a Wealth Tax

moneyA group of state lawmakers on Thursday proposed a first-in-the-nation state wealth tax that would hit about 30,400 California residents and raise an estimated $7.5 billion for the general fund.

The bill, AB 2088, would tax 0.4 percent of a state resident’s worldwide net worth in excess of $30 million, or in excess of $15 million for married taxpayers filing separately. Real estate is exempt, as it is already taxed at a higher rate than the proposed wealth tax.

The COVID-19 pandemic has devastated state and local budgets throughout California, with budget shortfalls totaling billions of dollars from declining revenues and significant financial investments to address immediate public health and safety needs.

According to Governing:

“We can’t simply rely on austerity measures,” to close [our budget crisis], said Rob Bonta, D-Oakland, lead author of AB2088. “We must consider revenue generation.”

People subject to the wealth tax would report it to the Franchise Tax Board along with their income taxes. They would have to report all assets including stock in publicly and privately traded corporations; interests in partnerships, private equity or hedge funds; cash, bonds and savings accounts; mutual funds, futures and options; art and collectibles; offshore financial assets, pension funds, non-mortgage debt, real property and mortgage debt.

But, many are raising questions over implementing and enforcing a wealth tax. “It is far easier to call for a state-level wealth tax than it is to actually design an enforceable one,” said Jared Walczak, a vice president at the Tax Foundation, a think tank. The system “would be extremely complex, with questions of how to value illiquid assets and whether residents’ out-of-state wealth — including their investment holdings — can be taxed.”

The bill is unlikely to be heard before the Legislature adjourns at the end of the month, but proponents plan to reintroduce the proposal on the first day of the next legislative session.

Useful Links

Governing: California Might Become the First State With a Wealth Tax