The state government of California is in a $50 billion hole thanks to the coronavirus pandemic — and a few other spending measures like giving free medical benefits and “stimulus checks” to illegal aliens.
The state’s budget deficit is probably far steeper than it should be, all things considered. So Democrats will tax the rich to help make up the deficit.
The rich are perfectly capable of speaking for themselves and need no defense from any of us to help them ward off state-sponsored theft. But there is an important principle at stake that needs to be defended vigorously.
How much should the most successful among us be taxed? The idiotic notions that the rich got that way because of racism or because they “stood on the backs of the poor” are liberal political rhetoric and not serious debate points about the issue of wealth or taxes. And if the state is going to raise taxes on anyone, they are beholden to the people to find ways to cut government expenditures by an equal or greater amount.
California Democrats are not going to cut any of their pet programs to narrow the deficit, so they’re going to get cash from the most convenient source; the rich and successful.
The bill, AB 2088, will tax .4% of a resident’s net worth if it exceeds $30 million for single and joint tax form filers, and $15 million for married couples filing separately. Real estate is exempt, as it’s already taxed at a higher rate than the wealth tax.
If passed, the state predicts the bill would raise about $7.5 billion for the general fund from over 30,000 residents.
Be very dubious about the state raising anywhere near $7.5 billion from this tax. No tax increase in world history has ever met expectations of revenue. But the temptation to soak the rich can be overwhelming if you’re a liberal.
The California Teachers Association sent out a statement Thursday calling on the California legislature to vote on Bonta’s bill as well as AB 1253, a tax on households making more than $1 million annually. The CTA said both bills were “were introduced in the context of growing inequality.”
“With the state’s finances in deficit, cuts to schools, healthcare, and essential community services will be inevitable without new taxes, which will set back California’s recovery and widen racial inequity as they did in the Great Recession,” the statement read.
How bad an idea is a “wealth tax”? In 1990, 12 European countries had a tax on wealth. Today, there are only 3.
Normally progressives like to point to Europe for policy success. Not this time. The experiment with the wealth tax in Europe was a failure in many countries. France’s wealth tax contributed to the exodus of an estimated 42,000 millionaires between 2000 and 2012, among other problems. Only last year, French president Emmanuel Macron killed it.
In 1990, twelve countries in Europe had a wealth tax. Today, there are only three: Norway, Spain, and Switzerland. According to reports by the OECD and others, there were some clear themes with the policy: it was expensive to administer, it was hard on people with lots of assets but little cash, it distorted saving and investment decisions, it pushed the rich and their money out of the taxing countries—and, perhaps worst of all, it didn’t raise much revenue.
California won’t have a problem with rich people fleeing the state. If they do, their wealth will still be taxed for 10 years after they go.
Elizabeth Warren introduced a wealth tax in the last Congress and you can bet Democrats are licking their chops in anticipation of being able to get all that spending money from rich Americans. Their goal will not be to balance the budget or meet any notion of fiscal responsibility. It will be a straight-up money grab — a simple transfer of wealth.
It will be interesting to watch their definition of “rich” change as the revenue fails to materialize.