New legislation that proposes to raise taxes on California’s upper bracket earners is raising questions about the message it conveys, singling out a certain segment of the population to shoulder so much of its tax load.
“The effect of this tax increase would likely be the opposite of what its proponents intend; they believe this tax will raise $22 billion annually, but in fact it will cause a net loss of revenue if the wealthiest California residents choose to move,” Susan Shelley, VP, communications with the Howard Jarvis Taxpayers Association (HJTA), told the Northern California Record by email. “After all, if people would like to live in a state with lower taxes, they have 49 other choices.”
The Franchise Tax Board estimated last year that 0.5% of state taxpayers pay 40% of state taxes, Shelley said.
In a news release, bill sponsor Assemblymember Alex Lee, D-San Jose, stated, “[I]t’s time for a tax on extreme wealth,” despite the state’s budget windfall.
“There is no reason to believe that a wealth tax would do anything other than drive the state's biggest taxpayers out of the state,” Shelley said. “They already pay a top marginal income tax rate of 13.3%, and they pay the regular income tax rate on capital gains. Some high-profile high-wealth taxpayers have already left California for states with more reasonable tax codes. So the impact of the wealth tax ultimately would be less public revenue to fund public services, as well the loss of jobs when high-wealth individuals move their companies out of state.”
Shelley noted that tax increases inevitably slow economic recovery.
“This is a particularly dangerous time to consider tax increases, with individuals and businesses already relying on government assistance to pay the bills while they're enduring the restrictions of the COVID-19 lockdown,” Shelley said. “A longer-term slowdown would mean many people would never recover from the devastating economic effects of the pandemic response.”
California's income tax rate is already the highest in the nation, and under SB 310 would rise to roughly 15%.
“This would be a first, at least for the United States,” Shelley said. “Before Proposition 13 was passed by voters in 1978, property taxes acted like a wealth tax, because they were assessed as a percentage of current market value, even though the gains were unrealized. Nearly two-thirds of voters supported Prop. 13 to put a stop to that type of taxation.”
The Bay Area Council has recently convened a business coalition to address headwinds in the state’s economy.
Shelley noted that passing legislation like AB 310 would only emphasize California’s image as a prohibitively high-tax state.
“It would certainly send a signal to high-wealth individuals around the world that it would be sheer idiocy to relocate to California,” Shelley said. “California already has the highest income tax rate, highest state sales tax, highest gas tax, and nearly the highest corporate tax. That doesn't count utility taxes or hidden taxes that raise the price of electricity, natural gas and transportation.”
AB 310 is currently before the Assembly Committee on Revenue and Taxation.
“Higher taxes will not solve California's problems,” Shelley said. “High taxes are the cause of California's problems.”