These days, it’s hard to keep up with the once-upon-a-time Golden State’s foolish policies. They come in such number and profusion, you can’t even track them all. That’s why the one-party state’s latest tax proposal is such an attention-getter: It would damage the state’s economy, perhaps beyond repair.
The proposal is, as a matter of economics, foolish beyond belief. In brief, the Democrats who have taken over the state now propose a “wealth tax” on the richest Californians, who are already fleeing the increasingly socialist state in alarming numbers.
A news story pretty much sums the coming disaster up:
Assemblyman Alex Lee, a progressive Democrat from San Jose, filed legislation that would tax an extra 1.5% on Californians with a worldwide net worth of more than $1 billion starting January of 2024, and 1% for those making more than $5o million starting in 2026.
Lee’s proposal aims to tax assets such as stocks and bonds that can skyrocket in value without incurring taxes until they’re sold. He said the tax would apply to the top 0.1% of California earners and could generate about $22 billion.
‘For far too long, we’ve allowed income inequality to deepen and fester in this state and this country while the rich get richer and the middle class shrinks behind,’ Lee said Monday.
The plan is both laughable and tragic because Californians have been fooled into thinking that having billionaires in your state is a bad thing. They do not understand that taxing wealth is taxing investment, and investment means jobs and incomes.
But, as legal scholar Jonathan Turley notes, the proposed tax law is also deceptive, since it’s not really a “billionaire tax” at all.
“The law has a cynical bait-and-switch provision,” Turley writes. “The billionaire tax is just meant for the initial packaging and passage. It can therefore be sold as a ‘billionaire’s tax.’ However, in two years, the threshold drops to a worldwide net worth exceeding $50 million. While billionaires would stay at 1.5%, those in the lower tax bracket would be hit by a 1% added rate on worldwide assets.”
And will it raise $22 billion in revenues, as expected? Nope. Billionaires are billionaires because they’re smart about money. They won’t be around to pay any “wealth tax.” Nor will they any longer be domiciled in California to be hit with the “exit tax” that giants of economic thought like Lee want to retroactively impose on those who leave.
Memo to Tennessee, Florida, Texas, Idaho, Utah and Washington: Get ready, because you’re going to see another wave of California immigrants. And you’ll be getting even richer, while California will be getting much poorer.
But hey, if California gets poorer, that’s good right? After all, it means inequality will decline as all those greedy billionaires and near-trillionaires move elsewhere, pushing down average wealth and incomes at the top of the range.
Truth is, even before a billionaire tax, California was already suffering a demographic crisis and a growing economic crisis, even amid the superficial signs of extravagant wealth evident in the state’s largest cities, high-tech centers and exclusive coastal enclaves.
In 2020, California suffered its first decline in population ever. As Chapman University urbanists Joel Kotkin and Marshall Toplansky noted in last year’s “Restoring the California Dream,” those who are leaving are not down and out or unskilled refugees or retirees. Far from it.
“The Internal Revenue Service reports that California’s domestic out-migrants and in-migrants had about equal incomes for the last five years,” the authors wrote. “Net domestic outmigration is increasingly prevalent among the upper middle class and the affluent. The largest share of net outmigrants in recent years has been households with incomes of $100,000 to $200,000.”
Now add to that a mass exodus of billionaires, and you can see the state will soon be in dire fiscal trouble. Income taxes account for 70% of state revenues and the top 1% of earners pay more than half of all California’s taxes.
So who’ll pay the taxes? Everyday Californians, look in the mirror.
California’s already experiencing a fiscal implosion of epic proportions. Progressive-far left Gov. Gavin Newsom last year bragged about a supposed “budget surplus” of nearly $100 billion.
In fact, the state is fiscally shot. Much of its “surplus” came from federal COVID aid and budget gimmicks. For instance, while California claims about about $565 billion in total debt, the California Policy Center estimates that liabilities at the state and local levels now total $1.6 trillion, or roughly $40,000 per person.
It’s about to get worse. In late November, just after Newsom was elected to a second term as governor, state budget officials suddenly discovered that the $100 billion surplus in fiscal 2022 was about to turn into a deficit of $25 billion this year, a swing of $122 billion in just months.
Yet, despite soaring inflation and an anticipated decline in state tax revenues of $41 billion, California’s unsustainable social spending is not on the chopping block.
“The budget shortfall is not expected to impact some of the state’s major government services like free kindergarten for 4-year-olds and free health care for low-income illegal immigrants,” Fox News noted.
Meanwhile, badly needed infrastructure improvements that would boost productivity, jobs and incomes will continue to be ignored.
“We don’t think of this as a budget crisis,” California Legislative Analyst Gabriel Petek said of the deficit.
Sorry, this is the very definition of a budget crisis, one linked to California’s penchant for overspending and overtaxing its citizens. They’re leaving in droves.
“The more they try to suck out of the rich, the more likely the rich are to move,” wrote Jack Hellner, a CPA, in The American Thinker. “When stock and real estate prices drop and/or the rich move in response, (because they have options), the worse shape California and other high tax states get.”
Exactly. What sane wealthy person would choose to stay in a state that demonizes you, wants to strip you of your wealth and makes it harder and harder to do business there? That’s today’s California.
In recent press releases, the state boasts of being the world’s fourth-largest economy, just ahead of Germany. But can it thrive as a one-party, high-tax, high-regulation “progressive” state with soaring crime rates, a shrinking population and businesses shutting down or moving out?
Not likely. But at least, when things do go south, California’s politicians and voters will no longer have “the rich” to blame anymore. They’ll all be gone.
— Written by the I&I Editorial Board