In a concerted effort with seven other states, Assemblymember Alex Lee (D-San José) has reintroduced the tax on extreme wealth in California as AB 259 and an accompanying proposed constitutional amendment, ACA 3. This tax would apply to households with net worths of more than $50 million, or the top 0.1% of Californians, and would generate an estimated $21.6 billion annually — roughly the same amount as the projected budget shortfall from the Governor’s proposed budget this year.
The ProPublica analysis released in 2021 revealed that the richest 25 Americans pay just a tiny fraction of their wealth in taxes, and some are able to pay little to nothing in income tax, with effective tax rates lower than the average American. By increasing their fortunes in assets such as stocks and property and then borrowing off those assets, they are able to avoid selling the assets and paying capital gains taxes.
Similarly, while the California income tax is successful at taxing most Californians, it is not very effective at taxing the ultra-wealthy. For example, the richest Californians like Mark Zuckerberg, Sergey Brin, or Larry Page, can avoid the California income tax as long as they do not sell their stocks.
“With this modest tax on the ultra-wealthy who pay a lower effective tax rate than the bottom 99%, we would have sustained investments in our schools, tackle homelessness, maintain and expand needed services, and much more,” said Assemblymember Alex Lee.
The proposed wealth tax is paired with a constitutional amendment and will apply a 1% tax on extreme wealth of $50 million or more per household and 1.5% on wealth in excess of one billion dollars. The proposed plan will be a constitutional amendment because the California Constitution currently limits the tax rate on personal property to 0.4%.
“And despite the fear mongering, the people that are leaving California aren’t the wealthy — in fact, California ranks among the lowest for residents with incomes above $200,000 leaving their respective states,” said Lee. “Instead, we’ve been losing our lower and middle-income residents that are being priced out of this state because they can’t afford the high cost of living while shouldering the burden of paying for our roads, infrastructure, and schools all the while the ultra-wealthy doubled their fortunes during the pandemic.”
The number of billionaires on Forbes’ 35th annual list of the world’s wealthiest has increased dramatically, with the number of billionaires increasing by over 30% last year, or a new billionaire roughly every 17 hours. Their collective wealth has increased by $5 trillion since last year, and the U.S. has the most number of billionaires, with over a quarter of U.S. billionaires coming from California.
“Working-class Californians living paycheck-to-paycheck should not pay more in taxes than the wealthiest,” said Assemblymember Ash Kalra (AD-25-San José), principal co-author of AB 259 and ACA 3. “Until the wealthy truly pay their fair share, we will continue to perpetuate the pervasive nature of economic inequity that has solely benefitted those at the top.”
“I am proud to coauthor AB 259 and ACA 3, Assemblymember Lee’s legislation proposing a Tax on Extreme Wealth. The gap of wealth and tax contributions between the extremely wealthy and hardworking families creates a significant socioeconomic problem. Extreme wealth has grown exponentially while tens of thousands of families face economic ruin and homelessness. A major reason that the very wealthy are successful is because our state and Californians build the infrastructure they need. It's time that the very wealthy pay their share to pay for critical services and programs that will benefit all Californians,” said Senator Maria Elena Durazo (SD 26-Los Angeles).
“CFT is proud to support AB 259 and ACA 3,” said Jeff Freitas, President of the California Federation of Teachers. “Billionaires and mega-millionaires should pay what they owe in taxes. Working families shouldn’t have to subsidize the ultra-rich so that our communities can have the schools, roads, and essential services they deserve.”
“I am proud to coauthor ACA 3 and AB 259, which will finally force the ultra-wealthy in California to pay their fair share of taxes,” said Assemblymember Liz Ortega (AD 20-Hayward). “In my district in the East Bay, the average rent is $2,200 per month and families are struggling. If billionaires have enough money to send themselves to space, they can afford to pay a little more to support our communities.”
The top 0.1% of the richest families, or about 23,000 households, would be affected by the tax, while raising estimated revenues of about $21.6 billion per year. If approved by the Legislature, the voters would decide in 2024. A recent poll conducted by Target Smart in late December 2022 and early January 2023 showed that 80% of California voters believe that the ultra-rich should pay what they owe, 76% support implementing a tax on billionaires, and 76% believe that state legislators have a responsibility to put a check on billionaires and the ultra-wealthy.
The billionaire tax would begin for taxable years 2024 and beyond and the ultra-millionaire tax would begin in January 2026.
In a concerted effort, wealth tax proposals have also been introduced in Connecticut, Hawaii, Nevada, New York, Maryland, Illinois, and Washington.
The bill is co-authored by Assemblymembers Ash Kalra (D-San José), Corey Jackson (D-Inland Empire), Liz Ortega (D-Hayward), Matt Haney (D-San Francisco), Miguel Santiago (D-Los Angeles), and Wendy Carrillo (D-Los Angeles), and Senators Lena Gonzalez (D-Long Beach), Lola Smallwood-Cuevas (D-Los Angeles), and Maria Elena Durazo (D-Los Angeles).