The proposed California wealth tax bill, Assembly Bill 259, is being reconsidered by the State Assembly's Revenue and Taxation Committee to address the state's $68 billion spending gap. Initially introduced by Democratic Assemblyman Alex Lee in 2023, the bill aims to tax wealthy Californians' net worth. Starting in 2024, it would levy a 1.5% tax on residents with a net worth over $1 billion, and from 2026, a 1% tax on those worth over $50 million. This tax strategy, often originating from California's progressive policy environment, could set a precedent for other states.
The bill's provisions are detailed and expansive. It proposes an annual excise tax of 1.5% on net worth over $1 billion starting in the current tax year and extends to a 1% tax on net worth over $50 million from 2026, with an additional 0.5% on assets over $1 billion. The tax would affect full and part-time residents, as well as recent non-residents. It covers a broad range of assets, including private-equity interests and offshore financial assets, and exempts real property. The Franchise Tax Board would assess the value of non-publicly traded assets, potentially impacting private businesses outside California.
The wealth tax is expected to generate an estimated $21.6 billion annually, yet this figure falls short of covering California's current fiscal deficit and the rising Medicaid spending, which has increased by $27 billion over the past four years. Additionally, the state is raising the top effective marginal tax rate on wage income to 14.4%, up from 13.3%, to fund expanded paid family leave. This fiscal approach, focusing heavily on taxation, might affect the state's economic landscape, potentially driving away businesses and high earners.
Sacramento's approach with the wealth-tax bill highlights a persistent pattern of introducing new taxes to support increased spending, reflecting a continuous tax-and-spend cycle. Despite the focus on taxing the wealthy, there is a concern that these fiscal policies may not sufficiently address the state's growing welfare and government-worker obligations. This raises the possibility that, in the future, the tax burden could extend to the middle class as well.