(January 8, 2024) A California Chamber of Commerce job killer bill labeled as a “wealth tax,” is scheduled to be heard in the Assembly Revenue and Taxation Committee on Wednesday.
The bill, AB 259 (Lee; D-San Jose), seeks to tax all forms of personal property or “wealth,” whether tangible or intangible, in addition to California already having the highest income tax in the country. This tax increase will drive high-income earners and their substantial tax payments out of the State.
AB 259 implicitly acknowledges that rates for existing California income taxes have reached beyond their practical or political maximums, so proponents now propose to devise an entirely new tax never before considered for the state.
Not only is this proposed tax audacious in the amount of new revenue to be raised, estimated by some at $21.6 billion a year; it targets individuals who may have only a fleeting connection with the state—reaching across time and space to seize revenues from successful entrepreneurs and business owners.
AB 259 would impose an annual tax beginning on or after January 1, 2024, and before January 1, 2026 at a rate of 1.5% of a resident’s worldwide net worth in excess of $1 billion or in excess of $500 million in the case of a married taxpayer filing separately.
After January 1, 2026, a tax of 1% would be levied upon the worldwide net worth of every resident in this state in excess of $25 million (for married taxpayers filing separately) or $50 million for all other taxpayers. Worldwide net worth would not include any real property directly held by the taxpayer (but would include indirectly held real property).
There would be an additional 0.5% surtax upon worldwide net worth in excess of $500 million for married taxpayers filing separately and $1 billion for all other taxpayers. Worldwide net worth would be calculated in the manner set forth for calculating the federal estate tax under the Internal Revenue Code and would be the value of all worldwide property owned by the taxpayer on December 31 of each year.
The California Franchise Tax Board (FTB) would be authorized to adopt regulations to prevent the avoidance or evasion of the wealth tax.
Highest Taxes in the Nation
California already has the highest income tax rate in the country and ranks 48th on the Tax Foundation’s 2023 State Business Tax Climate Index. California also has the highest sales tax rate and gas tax rate in the United States.
With 70% of California’s total personal income tax (PIT) revenue coming from the state’s top 5% of income earners, the additional tax burden established by AB 259 will make entrepreneurs and businesses think twice before residing or conducting business in the state.
In a letter sent to legislators last week, the CalChamber warned that California’s business and resident exodus is real, and AB 259 will drive the state’s money away rather than redistributing it.
“California’s elected leaders are facing the first revenue shortfalls since the Brown Administration. The very last thing the Legislature should be doing is signaling to the most productive and prolific taxpayers in the state that they should consider taking their investments, energy, innovation and tax payments elsewhere,” the CalChamber said.
Facilitates Nuisance Lawsuits
The CalChamber also expressed concern that AB 259 will facilitate nuisance lawsuits under the guise of tax enforcement, create conflicts with existing tax law, and lead to double jeopardy for taxpayers.
“Our opposition stems from serious concerns about the drastic changes that AB 259 would bring to California by introducing conflicting standards into tax law and allowing private attorneys to bring tax lawsuits against taxpayers. It will create conflicts with existing tax law—exposing even good faith taxpayers to concerns when filing their taxes,” the CalChamber said.