Legislators sideline Assemblymember Alex Lee’s proposed wealth tax

SACRAMENTO — Assemblymember Alex Lee’s effort to pass a wealth tax aimed at the richest people in the state has been stymied by lawmakers who argue that such a tax would prompt the state’s leading sources of tax revenue to relocate.

Assembly Bill 259, spearheaded by Lee (D-24th Assembly District), proposed a 1% annual tax on California residents with a global net worth exceeding $50 million and a 1.5% annual tax on those with a global net worth surpassing $1 billion. Accompanying the bill was a constitutional amendment, ACA 3, seeking to lift the 0.4% cap on the tax rate for personal property.

“Ultra-wealthy millionaires and billionaires generate their wealth from California’s robust and diverse economy, while many Californians live paycheck to paycheck,” Lee said in a statement issued Tuesday, Jan. 9. “The ultra-rich are able to take advantage of tax-avoidance strategies that ordinary people have no access to, with the wealth they accumulate in stocks and property skyrocketing untaxed. Meanwhile, working Californians shoulder the burden to pay for our roads, schools, infrastructure, and so much more. The state has been a haven for the ultra-rich to amass their wealth, and it’s past time for the wealthiest individuals to pay their proportionate share of taxes.”

Fellow legislators disagreed and decided to shelve the legislation after a brief hearing of the Assembly Revenue and Taxation Committee on Wednesday, Jan. 10. Assemblymember Joe Patterson (R-Rocklin) said Gov. Gavin Newsom’s expressed opposition to the bill rendered the conversation irrelevant.

“We are going through this process, but the reality is we know this isn’t going to make it all the way through the process,” Patterson said. “I appreciate the conversation, but this isn’t going to become law, partly because we have a governor who has already expressed opposition to this.”

Assemblymember Jacqui Irwin (D-Thousand Oaks) argued that the state already has a progressive income tax that is heavily reliant on high-income earners, and the proposed wealth tax would drive those earners out of the state, exacerbating revenue volatility.

“This bill targets individuals with the resources, technical sophistication and flexibility to relocate and minimize or avoid any tax liability envisioned by this proposal,” Irwin said. “Given the recent trends of high-income and highly educated Californians leaving the state at increased rates compared to other groups, I believe these trends will only accelerate.”

Lee responded that the only reason the state is so reliant on the highest income earners is due to the extent of income inequality and closing the wealth gap would do more to reduce the volatility in personal income tax revenue than catering to the excesses of billionaires and megamillionaires.

But Irwin said there were also issues with Lee’s revenue estimates. While Lee contended that the tax would generate an estimated $20 billion every year, the state Franchise Tax Board’s analysis suggested figures closer to $6.5 billion in fiscal year 2023-2024, $10 billion the following fiscal year and $16 billion the year after that.

The committee placed the legislation in suspense, postponing its consideration.

The day after the hearing, Lee expressed disappointment with the decision but emphasized his commitment to continue fighting for a more equitable tax system.

“Mega millionaires and billionaires need to pay their proportionate share of taxes,” Lee said. “The average person’s true federal tax rate is about 14%, while the wealthiest 25 people in the U.S. have a true tax rate of 3.4%.”

The proposed wealth tax garnered support from unions, the state Democratic Party and Alameda County Democratic Central Committee, among others. In contrast, it faced opposition from the Bay Area Council, California Chamber of Commerce, East Bay Rental Housing Association, Howard Jarvis Taxpayers Association and National Federation of Independent Businesses, among others.

_{Featured photo caption: Assemblymember Alex Lee (D-24th Assembly District) demonstrating with M&Ms the wealth of the ultra-rich, and a modest tax on extreme wealth. (Courtesy of Alex Lee’s Office)}