The legislation, proposed by Assemblyman Alex Lee (D) and sponsored by nine other state Democrats, would require California residents with a "worldwide net worth" above $1 billion to pay an additional 1.5% yearly tax beginning in January 2024. As early as 2026, the tax threshold could drop to $50 million with an imposed 1% annual tax.
"Billionaires aren't paying what they owe while enjoying public investments to build their empires," Lee wrote on Twitter. "My colleagues today and colleagues from 7 other states are introducing Wealth Taxes to bring tax justice #TaxTheRich."
"Worldwide net worth" encompasses a range of assets beyond annual income, including farmland, arts, collectibles, stocks, and hedge fund interest.
The legislation includes provisions that impose contractual claims to residents' assets, which would require payment even if they move out of state.
Last week, Connecticut, Hawaii, Illinois, Maryland, Minnesota, New York, and Washington proposed similar legislation to tax wealthy residents.
According to Lee, if the proposed bill is passed, the tax would apply to 0.1% of California households and generate $21.6 billion in state revenue. Lee intends for the new annual wealth tax to address the state's $22.5 billion budget deficit.
"This is how we can keep addressing our budgetary issues," Lee told the Los Angeles Times. "Basically, we could plug the entire hole."
Critics of the legislation believe it would push California's wealthiest residents out of the state.
"The proposed California wealth tax would be economically destructive, challenging to administer and would drive many wealthy residents — and all their current tax payments — out of state," Jared Walczak, vice president of state projects at Tax Foundation, told Fox News Digital. "The bill sets aside as much as $660 million per year just for administrative costs, more than $40,000 per prospective taxpayer, giving an idea of how difficult such a tax would be to administer."
Patrick Gleason, vice president of state affairs at Americans for Tax Reform, told Fox News Digital that the Democrat lawmakers believe they can "get around" the problem of Californians moving "by trying to tax people even after they leave the state."
Gleason and Walczak argued that the legislation is unconstitutional.
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