Tag Archive for: wealth tax

Unions Behind California Wealth Tax Proposal

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If at first you don’t succeed, try again. This adage applies well to ideas for new ways to tax Californians. Every election cycle we see new ways to be taxed, and higher tax rates, but rarely will we see a tax get repealed.

So it is that Assemblyman Alex Lee (D, San Jose) has introduced Assembly Bill 259, the Wealth Tax Act, which will impose an annual “worldwide net worth” tax of 1 percent on net worth above $50 million, rising to 1.5 percent on net worth over $1.0 billion.

Everything about this bill is goofy. It’s unconstitutional, it applies to intangible assets like goodwill or trademarks, it applies as well to assets that have subjective, wildly fluctuating values, such as fine art, and it even applies to equity owned in private companies that the holder may never convert into real money.

Already weighing in at nearly 16,000 words, AB 259 is riven with loopholes. And this typifies governance in California today — a state awash in laws and regulations so capricious and so complicated that they only reward those willing to laboriously scheme their way through the bureaucratic maze and opportunistically search for cracks in the walls, while penalizing those who aren’t sufficiently devious and instead prefer to do productive work. California is losing those good people.

A wealth tax will accelerate an exodus already in progress, as the wealthy will flee to more hospitable states, joining California’s small businesspeople, its vanishing middle class, aspiring youth, skilled workers, honest tradesmen and contractors, fixed-income retirees, and everyone else who can no longer afford to live here.

There’s a reason nobody can afford to live in California, and laying even more taxes onto the rich won’t fix it. But that isn’t the point, if you’re Alex Lee. Because taxes fund the state government, and the state government pays state employees, and labor unions collect dues from state employees. In the November 2022 election, apart from contributions from the State Democratic Party, every one of Lee’s top twenty contributors were unions, starting with the California Teachers Association.

Alex Lee and his union-controlled allies in the state legislature aren’t operating alone. As Lee proudly proclaimed in a press release issued January 23, AB 259 was issued “in coordinated effort with seven additional states,” Connecticut, Hawaii, Nevada, New York, Maryland, Illinois, and Washington. These bills vary, but all of them tax wealth.

There’s something else these bills share. As reported in the Los Angeles Times last month, “In the absence of a federal wealth tax, the State Innovation Exchange, a progressive nonprofit, and the State Revenue Alliance, which works with labor groups to call for taxing rich people, gathered a handful of states to create policy as part of the ‘Fund Our Future’ campaign.”

With what labor groups, you might ask? The State Innovation Exchange Board of Directors includes Mary Kusler, National Education Association, Michelle Ringuette, American Federation Of Teachers (AFT), and Brian Weeks, American Federation Of State, County, And Municipal Employees (AFSCME). The Advisory Committee for the State Revenue Alliance includes Amie Baca-Oehlert, Colorado Education Association, Marc Stier, who has worked as a campaign manager for the SEIU, and Charles Khan, the “Organizing Director at the Strong Economy For All Coalition, a Coalition of Labor Unions and Community groups.”

The other people overseeing and staffing the State Innovation Exchange and the State Revenue Alliance have backgrounds that typify big government and social justice activism — their resumes include copious references to familiar labor slogans — Defund The Police, Fight for $15, “campaigns for social, racial, and economic justice,” “racial equity,” “gender equity,” etc. As for the umbrella group “Fund Our Future,” it was founded by the American Federation of Teachers in 2019.

Behind this drive to impose a wealth tax is not merely a presumptuous resentment, i.e., the mission of the State Revenue Alliance is that “corporations and the ultra rich pay what they owe.” There is also a profound ignorance informing this movement. The “ultra rich” typically buy assets using after-tax income. Then if they collect dividends or rents off those assets, they pay taxes again.  If they ever sell their assets, they pay taxes on whatever gains they realize. There is already property tax on real estate, and we can thank the Biden administration and the 117th U.S. Congress for a new luxury tax on expensive planes, boats, and automobiles.

Based on current law, it might appear that America’s wealthy, especially those living in California, already “owe” plenty.

What unions in general, and public sector unions in particular, fail to understand is that in their drive for higher taxes on the rich and higher wages for their members, they are raising the cost-of-living for the rest of us.

The unions’ relentless push for more regulations and higher taxes make doing business more expensive, which translates into higher prices for goods and services. As such, union-backed taxes are regressive, and achieve the exact opposite of what unions purport to care about: they hurt working families.

Unions and their political front groups will never stop pushing these bad policies, however, because it runs contrary to their own financial interests.

This article originally appeared in the California Globe.

The Time Thieves of Sacramento

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Can you imagine having to do an inventory and net worth calculation every year? Let alone potentially being audited and having to prove that values were not intentionally understated? It’s not only financial robbery, it’s time theft!
– Senator John Moorlach, Moorlach Update, August 14, 2020

What Senator Moorlach is referring to is Assembly Bill 2088, which will impose a wealth tax on Californians who have a net worth in excess of $30 million. Moorlach, who remains the only Certified Public Accountant in either house of the California State Legislature, knows what he’s talking about. There are many problems with a wealth tax. How to handle unrealized gains. How to value investments in fine art, or private equity.

Valuing privately held assets is a subjective exercise. That’s one of the reasons CalPERS and other pension funds are increasing their holdings of private equity. Hiding behind the opacity of assets whose true value is anybody’s guess, they can claim their investment portfolio is worth more. It’s also one of the reasons that imposing a wealth tax is a very bad idea.

There’s two issues here, both of which ought to concern all Californians. First, the necessarily byzantine mechanics of a wealth tax. As Moorlach states, implementing this tax would require every one of California’s roughly 30,000 wealthiest residents to continuously wonder if they’ll ever have to explain to an auditor how they arrived at the values they reported for everything they own.

The proposed wealth tax would be applied to everything a California resident owns, no matter where it is on earth. And this tax on worldwide wealth would be imposed on anyone who has ever lived in California for ten years or more, even if they don’t live in California any more. Moreover, if someone currently living in California moves elsewhere, they will still have to pay the tax.

The way this provision of the law would be applied are proposed as follows: Former residents of California will pay 100 percent of the wealth tax in the first year of assessment, then 90 percent of the tax in year two, 80 percent in year three, and so on. After paying 10 percent of the wealth tax in year ten, California’s former wealthy residents would finally be off the hook.

One might think that chasing California’s exiles down in other states to impose a wealth tax is unenforceable, but this underestimates the guile of these legislators. They’re almost certainly seeing the law as a precedent for other states to follow, with the goal of allocating a tax on wealth to all participating states proportionally to how long the targeted individuals have lived in each state.

To anyone who believes that such a law is not only unenforceable but infeasible, it may be suggested that they read the latest climate scoping plans issued by California’s Air Resources Board. Focus specifically on the “Cap-and-Trade Program” and imagine how this is being applied in practice. If California’s bureaucracy can embrace something as fraught with ambiguity and fertile for corruption as carbon emissions trading, they’ll try anything.

Which brings us to the second issue of concern. As Moorlach states, this is time theft. But when has any of the lawmakers controlling the California State Legislature cared about imposing time consuming mandates on their constituents? It is common for critics of California’s regulatory state to cite the hard costs associated with compliance, whether it’s to build a new housing development or hire and manage a workforce. But what about the time?

This is a problem that affects every business in California, and one which disproportionately impacts small business owners. They are forced to hire expensive professionals to navigate a virtual avalanche of applications and reports before they can build anything or manage anything. But large corporations in many respects benefit from an extreme regulatory environment because they know it wipes out their smaller competitors.

This is why the time thieves of Sacramento are allowed to exist. Whatever they come up with is going to reward those bureaucracies, public or private, that either have no competition or that know the presence of punitive levels of regulation will stifle competition. They can raise the prices for their products and services, taking advantage of captive markets, covering the costs and spending the time, knowing it is actually working to their advantage.

The lack of financial or economic literacy in California’s state legislature, much less experience in the private sector, is not news. But when the only CPA in their midst is outnumbered 119 to 1, and the dominant party holds a “mega-majority” (75 percent of all seats) in both the Assembly and the Senate, there is no way to enforce a reality check. But their insatiable desire for money from taxpayers too often overshadows the amount of time they demand from taxpayers.

Thanks to the time thieves of Sacramento, across the state, projects that would make life better for everyone are not attempted. Adding a room to a home, launching a small business, hiring employees, attempting a new trade or profession: why bother? By the time you’ve earned the certifications, endured multiple rounds of applications with multiple agencies, paid countless fees, most of them excessive – and knowing you could be stopped cold at any time – it’s not worth it.

The wealth tax has awakened opposition from unlikely sources; even the editorial board of the Los Angeles Times has weighed in against it. Maybe, just this once, this bad idea will die in committee. But the underlying problem is a governing class more interested in imposing processes on the governed, to feed their bureaucracy, instead of nurturing productivity. If the legislature were to change its priorities, perhaps state revenues would rise without taxing more wealth and stealing more time.

This article originally appeared in the California Globe.

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