These California Democrats want to raise billionaires’ taxes. Will they succeed this time?

Rich Pedroncelli/AP file

Raising taxes on the super wealthy is a hurdle that even the nation’s most left-leaning states have yet to overcome.

But that hasn’t discouraged a coalition of Democratic California lawmakers from trying again.

Assemblymember Alex Lee, a San Jose Democrat, has reintroduced a bill that would tax California’s billionaires at a rate of 1.5% starting in 2024. In 2026, those worth over $50 million would face a 1% tax.

“For far too long we’ve allowed income inequality to deepen and fester in this state and in this country, where the rich get wealthier and the middle class shrinks and falls further behind,” Lee said during a press conference Monday afternoon.

Lee cited a 2021 ProPublica investigation that concluded America’s ultra rich “effectively sidestep” the federal income tax system by amassing wealth in stocks and property, which aren’t taxed unless and until they’re sold. Many of the nation’s richest people pay a smaller effective tax rate than the average American.

AB 259, which Lee reintroduced last week, would not work like the usual income tax. It would target a person’s “worldwide net worth”, which includes “realized and “unrealized” assets like stocks, real estate, art and collectibles, farm land and offshore accounts.

If signed into law, the tax would generate about $21.6 billion in revenue and affect the top 0.1% of California households.

Enforcement would cost about $1.275 billion over the first four years, according to the bill. It creates “Wealth Tax Administration Funds” within the Franchise Tax Board and the Justice Department, which would be funded on an annual basis.

Supporters of Lee’s bill include several other Democratic lawmakers, along with labor groups like the California Federation of Teachers and the American Federation of State, County and Municipal Employees.

“This is not just about income inequality — it’s about addressing the billionaires who can afford to send themselves to space, but refuse to pay for our infrastructure, for our higher ed, for our education, for our children, for our hospitals,” said Assemblymember Liz Ortega, D-Hayward, one of the bill’s coauthors.

Democratic lawmakers in seven other states introduced similar legislation on Thursday as part of a coordinated effort.

But that plan would not prevent the richest Californians, such as Elon Musk, from moving to states like Texas and Florida that have no personal income tax. Musk changed his personal residence to Texas in 2020 and recently relocated Tesla’s headquarters from Palo Alto to Austin.

“We are trying to build pressure, one state at a time, to enact these policies and then roll them up to the national level,” Lee said.

Lee expressed hope that the multi-state coalition would increase support for the bill within the Capitol. He also cited a poll of nearly 500 Californians that found 80% agreed that “the ultra-rich should pay what they owe”.

Still, such a wealth tax faces long odds even in a Democratic stronghold like California. Lee’s attempt last year gained little traction and was never put to a vote.

In order to raise taxes by over 0.4%, Lee and his coauthors introduced constitutional amendment that would eliminate the 2/3 majority vote required to pass tax increases. Voters would have to approve that amendment on the 2024 ballot before the wealth tax could take effect.

The Howard Jarvis Taxpayers Association expressed greater concern about the constitutional amendment than the wealth tax bill itself.

“ACA 3 would gut Proposition 13,” said spokesperson Susan Shelley in a statement. “It would allow the Legislature to raise taxes with a simple majority vote instead of the constitutionally required two-thirds vote established by Prop. 13.”

Gov. Gavin Newsom’s office did not respond to a request for comment Monday. He has condemned as “fiscally irresponsible” previous proposals to tax the rich. Last year Newsom strongly opposed Proposition 30, which would’ve funded electric vehicles subsidies and wildfire suppression through a 1.75% tax on income over $2 million.

In 2012 and again in 2016, Californians voted to increase taxes on those earning more than $250,000 a year.

Critics said that raising taxes even further on the rich would cause them to leave California and take critical revenue with them. Since the wealthiest residents earn much of their income from capital gains, California’s revenues often reflect the health of the stock market and fluctuate widely from year to year.

The California Taxpayers’ Association said the measure might prompt lawmakers to consider raising taxes on middle-and lower-income earners if the wealthy move out of California.

“Even if just a few of the top earners leave the state, that can create a major revenue loss that will then either require the state to cut back programs, or there will be calls to raise taxes on everybody else,” said David Kline, spokesperson for the organization.

Kline also emphasized how difficult enforcement would be. The state would likely have to hire an undetermined number of auditors, appraisers and lawyers to ensure compliance with the law. Valuing one-of-a-kind assets, like original artwork and other collectibles, would be challenging and time-intensive.

“It’s absurd on a practical level,” said Sanjay Varshney, professor of finance at Sacramento State University and chief economist for the Sacramento Business Review. “It’s a futile exercise in wishful thinking.”

Lawmakers on Monday sidestepped questions seeking specifics about how the policy would be enforced. Instead, Lee pointed out how if the state was able to appraise millions of Californians’ houses, it should be able to accurately appraise a few thousand wealthy residents’ high-value assets.