California law considers a property tax for residents, part-year residents, and anyone who spends more than 60 days within state lines in a single year. Even those who move out of the state would be subject to tax for a decade more – a provision reminiscent of the Eagles’ famed “Hotel California” poetry: “You can check out anytime, but you can never leave. ”
The California Constitution likely allows a statewide property tax for residents, but any attempt to create a tax that can extend across state lines is likely to be against the U.S. Constitution. Taxing someone who spends only 60 days in a year in the state – and extending that tax over a decade – would be something new under the sun.
Each year this tax net would collect a new crop from taxpayers for the next decade. The range of people it suggests to seduce is staggering: Any student attending college in California, anyone who has a major medical procedure in a California hospital and needs an extended state of recovery, and those who have two months outside New York in California or London winter. Under California tax law, there is no difference between a non-Minnesota resident and a non-Dubai resident.
The 2088 bill proposes that wealth tax be calculated based on current global net wealth every December 31st. For part-year and temporary residents, the tax would be proportional to their number of days in California. The annual tax would be based on current net worth and therefore include assets earned, inherited, or received through gifts or estates long before and long after leaving the state.
The proposed wealth tax would fall on a high school or college athlete who grew up in California but turned into a wealthy professional after graduating in another state. It would take hold of a scientist who, years after leaving California, was developing a drug to cure cancer. A grandchild surfing Southern California for a summer is taxable. It would include anyone returning to a foreign country after 60 days in California.
Imagine if a Saudi prince’s child is asked to pay California wealth tax during college and nine years after graduation.
The bill’s authors estimate that the Sacramento property tax will add $ 7.5 billion in additional revenue each year. Another proposal – to raise the highest federal income tax rate to 16.8% – would raise another $ 6.8 billion annually. Today, California’s richest 1% pay approximately 46% of total state income taxes. Adding wealth tax to individual taxes and including taxpayers who have left California, the combination of the two proposals would result in 1% of the state’s population paying about 53% of individual taxes.
California has enough financial problems for a whole great nation. Most are self-made, including unsatisfactory public pension promises and a huge social safety net that is beyond the funding ability of California workers. Legislature therefore expects the wealthiest Californians to fill funding gaps without considering the constitutionality of the proposals and the ability of people and businesses to take in and leave the state, which is happening in great numbers, according to news reports. Gathering the financial information required to calculate wealth tax AB 2088 would be an invasion of privacy.
Proponents argue that wealth tax is “only” 0.4% on net wealth in excess of $ 30 million and the percentage of net wealth taxed would decrease each year during the 10-year “tail” if a taxpayer left the state. While the rate seems negligible and the $ 30 million base seems high, it’s a slippery slope. In California, tax rates rarely go down. The state’s highest income tax rate in 2003 was 9.3%. Soon it could be 16.8%. Why 0.4% instead of 1%, 2% or 10%? Why not a $ 10 million base?
Even at 0.4% there are staggering new tax rates. Facebook‘s
Mark Zuckerberg would pay about $ 400 million in tax for the first year. If he moved out of the state immediately, his total wealth tax would be an additional $ 2 billion over the next decade. If he stayed in California, the property tax would deduct $ 4 billion this decade.
If Bill Gates stayed at his Palm Desert home 60 days a year, his wealth tax would be more than $ 1 million for each day in California. While the tax would decrease every year if he was out of state, he would continue to be subject to tax on his worldwide wealth for another decade.
The cost of taxpayer compliance and the cost of government enforcement would be enormous. For most taxpayers, the cost of compliance would far exceed the amount of tax. A resident with a net worth of $ 31 million would be subject to a wealth tax of $ 4,000. The cost of an annual valuation of each taxpayer’s wealth could easily exceed $ 100,000. The state would have to hire accountants to hunt people around the world.
From that moment on, there will be no police roadblocks on the freeways to prevent trucks from leaving California. If AB 2088 becomes law, the state may need to consider placing some.
Mr. Adler is an associate professor of accounting at Chapman University.
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