California Set To Pass The Nation's First Wealth Tax Targeting The Ultra Rich

It was about about nine years ago when consulting company BCG first suggested that in a time of out of control spending and soaring debt loads, the only fiscally sustainable "solution" was to implement a wealth tax (see "There May Be Only Painful Ways Out Of The Crisis").

While the idea was well ahead of its time in 2011, and was quickly shut down in the court of public opinion, several years later none other than the IMF resurrected the idea of a wealth tax, which has only gained momentum in recent months, and despite widespread grassroots pushback, the concept of a "wealth tax" has moved front and center and most recently the chairman of Capital Economics, Roger Bootle, said that the world’s wealthiest could be subjected to higher tax rates as governments scramble to fund spending and repair their economies amid the coronavirus crisis.

Fast forward to today when the ultra-liberal state of California is now ready to take this "socialist" idea from concept to the implementation phase, with the SF Chronicle reporting that a group of CA state lawmakers on Thursday proposed a first-in-the-nation state wealth tax that would hit about 30,400 California residents and raise an estimated $7.5 billion for the general fund.

 The proposed tax rate would be 0.4% of net worth (most likely ended up far higher), excluding directly held real estate, that exceeds $30 million for single and joint filers and $15 million for married filing separately

And in doing that, California will trigger an exodus of billionaires who will be the first to realize which way the wind is blowing, and end up hurting the state far more than helping it as hundreds of ultra wealthy taxpayers leave for places like Florida or - for that matter - any other place in the world.

Bonta said that the union-sponsored bill will not be heard before the Legislature adjourns Aug. 31, but “it can be reintroduced on day one of the next session.”

Now what most normal Americans (i.e. those not living in California) may not know, is that this would be the second wealth tax set to pass in California. Bonta said he would like to see a wealth tax passed in addition to the “millionaires tax” proposed in a bill introduced in late July. AB1253 would add surcharges of 1% to incomes (joint or single) between roughly $1 million and $2 million, 3% on income between $2 million and $5 million, and 3.5% on income greater than $5 million, bringing the top rate to 16.8%. 

California’s top rate today, at 13.3%, is already the highest in the nation, and it's only going higher

The millionaires (and soon to be hundred thousandaires, then ten-thousandaires and so on) subject to the wealth tax would report it to the Franchise Tax Board along with their income taxes. They would have to report all assets including stock in publicly and privately traded corporations; interests in partnerships, private equity or hedge funds; cash, bonds and savings accounts; mutual funds, futures and options; art and collectibles; offshore financial assets, pension funds, non-mortgage debt, real property and mortgage debt. Which of course is idiotic because some of that wealth is extremely illiquid and evaluating it will not only take material time and effort, but also result in drastic costs.

 Furthermore, just how will the government confirm that whatever wealth is reported represents reality. But such is life in a half-baked socialist utopia where every idea is for lack of a better word, idiotic.

There was some good news: "Directly held real property, and mortgages and other liabilities secured by directly held real property,” must be reported, but would not be considered in calculating the taxpayer’s worldwide net worth, the bill said. How wonderful... oh wait, someone realized that this would simply be double taxing the same assets: "Real estate would be exempt from the wealth tax because it’s already subject to property tax, at a higher rate", Bonta said.

 However now that California is on the verge of passing a wealth tax, every other insolvent state will follow suit, staring with New York.

Read More Here: Zero Hedge