Assembly Member Alex Lee and nine co-authors this week reintroduced legislation to tax assets of high-wealth Californians – a “wealth tax” that would apply to, but would not be limited to, art and collectibles, real property, pension funds, financial assets held offshore, farm assets, mutual funds, index funds, and stocks.
The plan, contained in AB 259 and ACA 3, would tax “the activity of sustaining excessive accumulations of wealth” at a rate of 1.5 percent of “worldwide net worth” higher than $1 billion ($500 million for a married taxpayer filing separately). Beginning with the 2026 tax year, the tax would be expanded by lowering the threshold to assets worth more than $50 million ($25 million for married filing separately). The lower amounts would be taxed at a lower rate of 1 percent, while assets above the $1 billion and $500 million thresholds would continue to be taxed at 1.5 percent.
Worldwide net worth would not include any real property directly held by the taxpayer or any tangible personal property directly held by the taxpayer and located outside of California, but would include the value of real property or out-of-state tangible personal property “held indirectly, as through a corporation, partnership, limited liability company, trust, or other such legal form, except to the extent that such inclusion is prohibited by the United States Constitution or other governing federal law.”
The tax would continue to be imposed on former Californians for several years, at reduced amounts. This would apply to those who leave the state temporarily as well as to any taxpayer “who was subject to the Wealth Tax in one of the preceding four years and is no longer a resident, and does not have the reasonable expectation to return to the state.”
For all publicly traded assets, the value would be presumed to be the market value at the end of the tax year.
Similar provisions were included in the lawmaker’s AB 310 of 2021 and AB 2289 of 2022, both of which died in an Assembly committee without being brought to a vote.
CalTax President Robert Gutierrez urged lawmakers to reject the tax proposal.
“Under California’s tax structure, 70 percent of the state’s personal income tax revenue comes from the top 5 percent of earners,” Gutierrez noted. “If these taxpayers were to leave for any of the 49 states with lower taxes, the wealth tax would jeopardize California’s largest revenue stream. With the state facing budget uncertainty and possible recession, California cannot stand to lose tax dollars, investments, or jobs.”
The Los Angeles Times reported that the latest wealth tax effort is being pushed by the State Innovation Exchange (which describes its funders as “foundations, individual donors, and progressive allies”) and the union-affiliated State Revenue Alliance.
The wealth tax measure will require a two-thirds vote in each house for passage, and the same vote threshold would be needed to place the accompanying constitutional amendment on the ballot asking voters to remove the cap on taxing personal property.