California Assembly Introduces Wealth Tax

California state assembly member Rob Bonta of the 18th District introduced AB-2088 in the 2019/20 legislative session, which would impose a first-in-the-nation state wealth tax on individuals. The tax would be 0.4% on any net worth exceeding $30 million for California residents and former residents.  

The tax would require individuals to prepare a statement of net worth on an annual basis, which would require valuations of assets like collectibles, real estate, jewelry, art and all other property. Whereas publicly traded stock positions would presumably be valued based on their closing stock exchange prices as of year-end, valuing other property (e.g., foreign real estate; ownership in closely held, non-public companies; other esoteric investments) could be a vexing issue with the proposed tax.

The most unique element of the proposed wealth tax is a feature that would impose the tax on Californians who leave the state after the tax is enacted. The proposed law would tax them for 10 years following their departure on a sliding scale based on how many years they have been gone. For example, in the sixth year after departing, a former California resident would be taxed at 10-6= 4/10 of the full tax. 

The tax is expected to raise $7.5 billion annually, based on the assumption that those subject to the tax do not leave the state. There is also the possibility that people considering moving to California may take this tax into consideration. For example, if Jeff Bezos were to grow weary of the Seattle rain and move to Beverly Hills, he would not only be paying the highest state income tax in the country at 13.8% verses zero in Washington, but he would also be subject to a wealth tax of $752 million per year should this bill become law. Click here to see the full text of the bill.