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Any day now, California will pass the nation’s first wealth tax. It will be 0.4% of net worth (exclusive of directly held real estate) of individual estates worth more than $15 million for filing separately and $30 million for filing single or joint).
It would affect 30,400 California tax payers. There are 170 billionaires based in California. A 0.4% net worth tax on $1 billlion is $4 million.
Seems reasonable.
Of course, the 0.4% rate will increase. The nation’s first income tax had a top level percentage of 6% that ultimately rose to 90%. Probably won’t stay at 0.4%.
I’m guessing the exodus will continue.
https://www.zerohedge.com/markets/california-set-pass-nations-first-wealth-tax-targeting-ultra-rich
Now what most normal Americans (i.e. those not living in California) may not know, is that this would be the second wealth tax set to pass in California. There was a “millionaires tax” proposed in a bill introduced in late July. AB1253 would add surcharges of 1% to incomes (joint or single) between roughly $1 million and $2 million, 3% on income between $2 million and $5 million, and 3.5% on income greater than $5 million, bringing the top rate to 16.8%.
What’s interesting about that is that these extra state taxes on the wealthy will start to fill the gap left by Trump’s reduction in the federal rates. Trump is starving the Federal budget only to see the states increase their collections.
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Let’s face it, 30,400 taxpayers isn’t enough. Plus the whole problem with a wealth tax is that if you set it too high, you’re going to drain people’s wealth down faster than the wealthy can increase their wealth, and then… voila, they aren’t wealthy enough anymore. We’ll see if the 10-year tail if you move passes dormant commerce clause / freedom of movement muster.
If there is a silver lining in this, this proposed wealth tax is the perfect experiment to see if there is an effect on professional athletes and free agency. Let’s see if LeBron wants to stay with the Lakers. The Clippers just signed a bunch of players (Paul George, Kahwi Leonard), and we’ll see how quickly they move in this tax environment. What about the other sports leagues?
I could care less about the empty headed Hollywood types. Athletes seem to respond to monetary incentives, and with the inflation of top end salaries, this will definitely be a hit on some of those salaries. On the MLB list alone, that’s Mike Trout, David Price, Manny Machado, Clayton Kershaw over $30M. Albert Pujols (!), Buster Posey, Justin Upton, Johnny Cueto, Eric Hosmer, Jeff Samardzija, Kenley Jansen, Brandon Belt, Khris Davis, Brandon Crawford, and Evan Longoria are over the $15M threshold. Granted, not all of that income = wealth, but presumably these guys saved a significant amount of that salary, especially the older guys.
On the NBA side, there’s Steph Curry, Lebron James, Kawhi Leonard, Klay Thompson, Paul George over $30M. Then Anthony Davis, Harrison Barnes (!), Kent Bazemore (!), Draymond Green, and JR Smith over $15M.
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The wealth tax concept makes sense in concept, and really should be put into play, but in practice it will be a problem. It would cause an immediate shock to valuations and would create an incentive for capital flight and/or valuation fraud.
That said, it makes sense. We want capital to be circulating and not stagnant. We don’t want intergenerational “dynasty” wealth.
But those aren’t the issues in California. They are just grubbing for money. And that’s a bad reason to experiment with a wealth tax.
I still think the best wealth tax is one that occurs during generational asset transfers. A yearly “property” tax on capital is actually double jeopardy, as the capital value of an asset is comprised of the estimated value of each year’s cash flows, and so taxing the same capitalized cash flows every year strikes me as bad policy. It would seriously imperil long term investing, for instance.
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Sic transit gloria mundi (so shut up and get back to work) -
My own thoughts were about a far more comprehensive tax that would substitute a wealth base for the income base. Obviously, it won’t succeed imposed by individual States. It won’t succeed as a surtax, because of notch effects and other issue.
Still, it’s a start. Its first cousin, Universal Basic Income, seems to me an inevitability – and is NOT the descent into socialism some may think (any more than public schools).
I gave up proselytization not because I lost faith in the concept, but because the problems with monetary theory were insurmountable. Piketty informs us we have 6 to 8 times the amount of productive wealth that we do of income. But we have hundreds, maybe thousands of times, that amount of monetary equivalents. One of the good collateral aspects of switching to a wealth based annual tax is that we would squeeze all that phony money out of the economy. But, Lord! The social dislocation would be enormous, alm0st too great to contemplate.
CEBers interested in the work that Mick, and the poster formerly known as Boston Card, amd myself did on the prospect can find the link to the blog here. The concept is actually workable, but you need a political consensus that doesn’t exist to enact it – plus all those collateral issues.
I wouldn't give you two cents for all your fancy rules if, behind them, they didn't have a little bit of plain, ordinary, everyday kindness - yeah, and a little looking out for the other fella, too.
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