At this point, it might be reasonable to assume that California’s government wants to drive wealthy individuals and corporations out of their state. State lawmakers are pushing a tax intended to further punish those who have accumulated wealth.

Assembly Bill No. 259 aims to address the state’s budget deficit by imposing a brand-spanking new tax on the wealthy. Proponents argue that it is a vital step towards financial stability. However, as with most progressive tax proposals, this one would likely do far more harm than good.

As California lawmakers brace for a major budget deficit, state lawmakers in a key committee this week are expected to consider a new tax on the richest of the rich.

Lawmakers in the State Assembly's Revenue and Taxation Committee are dusting off Democratic Assemblyman Alex Lee's Assembly Bill 259, which went nowhere after it was first introduced in 2023. The measure would impose a 1.5% tax on the assets of Californians with a worldwide net worth of $1 billion as soon as 2024, and a 1% tax on those with a net worth of $50 million by 2026. The hearing is set for Wednesday afternoon.

"I'm delighted after so many times of introducing the wealth tax, it's finally getting its first hearing," Lee told KCRA 3 on Monday. "It would be the fiscally responsible thing to look at the people who effectively pay little-to-no taxes than ask again for the working class or middle-class people to shoulder cuts or shoulder new taxes."

The new measure takes aim specifically at the assets of mega-millionaires and billionaires, such as stocks, bonds and property, which primarily help build their wealth. Those assets today can skyrocket in value without incurring any taxes until they're sold. Lee said there are an estimated 186 billionaires in California, and noted the tax would affect less than the top .1% of Californians.

The bill will also empower people to file lawsuits against wealthy individuals if they find out they are not reporting all of their assets. This would effectively incentivize people to snitch on these folks in order to get some cash.

There are likely millions of reasons why this is a horrible idea.

But let’s start with the fact that this measure would do very little to solve California’s budget problems.

The wealth tax would raise an estimated $21.6 billion in revenue annually, assuming no wealth exodus in the state. Yet this is still far less than California’s budget deficit in this fiscal year. Nor does it cover the $27 billion increase in California’s Medicaid spending over the last four years. Medicaid spending this year will swell even more as the state expands eligibility to all undocumented migrants.

Meantime, California’s top effective marginal tax rate on wage income this year is increasing to 14.4% from 13.3% owing to a new law that removes the $145,600 wage ceiling on a 1.1% state employee payroll tax to fund expanded paid family leave. You almost have to wonder if Democrats are trying to drive away more businesses and high earners.

This brings me to my next point. This bill would almost certainly drive more wealthy individuals out of the state. These taxes could easily motivate people and companies to relocate to states that don’t want to punish them for being successful. This would mean that the state would not collect as much revenue as it anticipates. Moreover, it would lead to a loss of jobs and economic activity, which would counteract the supposed benefits of the measure.

At a time when a record number of people are fleeing the Golden State, this move would only make the situation worse – or perhaps better depending on one’s perspective. I’m sure if this bill is passed, Florida and Texas will be welcoming even more high-income people to their states with open arms.

Update [5:34 p.m. EST, 1/10/24]: Not all of California's Democrats are on board with the proposed wealth tax. Gov. Gavin Newsom, while criticizing the Wall Street Journal's report on the bill, stated that he and others do not support the measure, Politico reports:

The Democratic governor repeatedly lashed out at the Wall Street Journal’s editorial board on Wednesday for implying he might support the progressive proposal, despite Newsom and his administration having emphatically rejected the idea for years. Newsom reiterated that stance this week, before the editorial published, and said Wednesday he would look to a mix of cuts and reserves to close a $38 billion deficit.

“Are you supporting a wealth tax? No, yet again. Why the hell do you keep writing about that?” Newsom said during a budget presentation in Sacramento."

One of their writers also took this jab at Gov. Hair Gel on X, formerly Twitter:

.@WSJ editorials once again living rent-free in Gavin Newsom's head.

(this published last night — https://t.co/MakHYtQOHi) https://t.co/ZqMeLmbEZz

— Lara Korte (@lara_korte) January 10, 2024

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