Tax the rich? Liberals renew push for state wealth taxes
SUSAN HAIGH
Fri, January 20, 2023
Supporters of taxes on the very rich contend that people are emerging from the COVID-19 pandemic with a bigger appetite for what they’re calling “tax justice.”
Bills announced Thursday in California, New York, Illinois, Hawaii, Maryland, Minnesota, Washington and Connecticut vary in their approaches to hiking taxes, but all revolve around the idea that the richest Americans need to pay more.
All of the proposals face questionable prospects. Similar legislation has died in state legislatures and Congress. But the new push shows that the political left isn’t ready to give up on the populist argument that government can and should be used as a tool for redistributing wealth.
“Under the pandemic, while people struggled to put food on the table, we saw billionaires double their wealth,” said California Assembly Member Alex Lee, a Democrat.
The Tax Foundation, a conservative-leaning policy organization, called wealth taxes — which levy taxes not just on new income, but on a person’s total assets — “economically destructive.”
It also said in a statement that such taxes create “perverse incentives” for the rich to avoid taxes, including simply moving to states with a lower tax burden.
“Very few taxpayers would remit wealth taxes -- but many more would pay the price,” the group said in a statement. Progressive Democrats, however, argue they are not seeing wealthy taxpayers leaving their states due to higher taxes.
California already taxes the wealthy more than most states. The top 1% of earners account for about half of the state’s income tax collections. But this week, Lee proposed a “wealth tax,” similar to one promoted for years by U.S. Sen. Elizabeth Warren, a Massachusetts Democrat.
It would impose an annual tax of 1.5% on assets of more than $1 billion and 1% on assets of $50 million or more. The new tax on wealth, not annual income, would affect an estimated 23,000 “ultra-millionaire” and 160 billionaire households, or the top 0.1% of California households, Lee said.
In Connecticut, progressive lawmakers are proposing more traditional hikes: a higher tax rate on capital gains earnings for wealthy taxpayers and higher personal income tax rates for millionaires,
“We need to ensure that the wealthiest in our state truly pay what they owe and not expect working families across our state to continue to subsidize their share,” said state Rep. Kate Farrar, a deputy majority leader in the Democrat-controlled House of Representatives.
One obstacle to such proposals is that some states where the idea might be popular are currently running budget surpluses, meaning there is little pressure to raise revenue.
Connecticut is expected to end its fiscal year with a $3 billion surplus. Hawaii is projecting a budget surplus of $1.9 billion going into the new legislative session.
But Hawaii state Rep. Jeanne Kapela, a Democrat, said a proposal there to increase the state’s capital gains tax is more about economic equity than raising money.
“If you look at our tax code now, it’s really the definition of economic inequality,” Kapela said.
The lowest-paid workers in many states often see a far bigger percentage of their income go to pay taxes every year than the very rich, particularly in states that don’t have a graduated income tax.
Voters in Massachusetts, which had a flat income tax, approved an amendment to the state constitution in November that sets a higher rate for those earning more than $1 million a year.
Despite optimism expressed by liberal lawmakers that 2023 could be the year, many of these proposals face an uphill battle, even in blue states with Democratic governors.
“This ‘tax the rich’ has been around before and it’s present again. And quite frankly, it never got traction before and I seriously doubt there’s an appetite for it now," said Gary Rose, professor of political science at Sacred Heart University in Fairfield, Connecticut.
A lot of people, he said, don't resent the rich as much as some progressive Democrats.
“I think if you polled the American people, a lot of people want to get rich themselves and it’s part of, if you will, the American Dream,” Rose said. "We’ve never really had in this country a tremendous appetite for taxing the rich because getting rich ... is really part of who we are and what separates this country from many Democratic socialist countries.”
A wealth tax bill in California never even got a public hearing last year. Gov. Gavin Newsom, a Democrat who was just elected to a second term in a landslide, has actively campaigned against efforts to increase taxes on the rich.
His opposition helped sink a 2022 ballot initiative that would have raised taxes on the rich to pay for electric vehicle charging stations and wildfire prevention.
In Connecticut, Democratic Gov. Ned Lamont, a multimillionaire, says he wants to focus his second term on reducing taxes rather than raising them.
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Associated Press Writer Audrey McAvoy in Honolulu, Hawaii and Adam Beam in Sacramento, Calif. contributed to this report.
Fri, January 20, 2023
Supporters of taxes on the very rich contend that people are emerging from the COVID-19 pandemic with a bigger appetite for what they’re calling “tax justice.”
Bills announced Thursday in California, New York, Illinois, Hawaii, Maryland, Minnesota, Washington and Connecticut vary in their approaches to hiking taxes, but all revolve around the idea that the richest Americans need to pay more.
All of the proposals face questionable prospects. Similar legislation has died in state legislatures and Congress. But the new push shows that the political left isn’t ready to give up on the populist argument that government can and should be used as a tool for redistributing wealth.
“Under the pandemic, while people struggled to put food on the table, we saw billionaires double their wealth,” said California Assembly Member Alex Lee, a Democrat.
The Tax Foundation, a conservative-leaning policy organization, called wealth taxes — which levy taxes not just on new income, but on a person’s total assets — “economically destructive.”
It also said in a statement that such taxes create “perverse incentives” for the rich to avoid taxes, including simply moving to states with a lower tax burden.
“Very few taxpayers would remit wealth taxes -- but many more would pay the price,” the group said in a statement. Progressive Democrats, however, argue they are not seeing wealthy taxpayers leaving their states due to higher taxes.
California already taxes the wealthy more than most states. The top 1% of earners account for about half of the state’s income tax collections. But this week, Lee proposed a “wealth tax,” similar to one promoted for years by U.S. Sen. Elizabeth Warren, a Massachusetts Democrat.
It would impose an annual tax of 1.5% on assets of more than $1 billion and 1% on assets of $50 million or more. The new tax on wealth, not annual income, would affect an estimated 23,000 “ultra-millionaire” and 160 billionaire households, or the top 0.1% of California households, Lee said.
In Connecticut, progressive lawmakers are proposing more traditional hikes: a higher tax rate on capital gains earnings for wealthy taxpayers and higher personal income tax rates for millionaires,
“We need to ensure that the wealthiest in our state truly pay what they owe and not expect working families across our state to continue to subsidize their share,” said state Rep. Kate Farrar, a deputy majority leader in the Democrat-controlled House of Representatives.
One obstacle to such proposals is that some states where the idea might be popular are currently running budget surpluses, meaning there is little pressure to raise revenue.
Connecticut is expected to end its fiscal year with a $3 billion surplus. Hawaii is projecting a budget surplus of $1.9 billion going into the new legislative session.
But Hawaii state Rep. Jeanne Kapela, a Democrat, said a proposal there to increase the state’s capital gains tax is more about economic equity than raising money.
“If you look at our tax code now, it’s really the definition of economic inequality,” Kapela said.
The lowest-paid workers in many states often see a far bigger percentage of their income go to pay taxes every year than the very rich, particularly in states that don’t have a graduated income tax.
Voters in Massachusetts, which had a flat income tax, approved an amendment to the state constitution in November that sets a higher rate for those earning more than $1 million a year.
Despite optimism expressed by liberal lawmakers that 2023 could be the year, many of these proposals face an uphill battle, even in blue states with Democratic governors.
“This ‘tax the rich’ has been around before and it’s present again. And quite frankly, it never got traction before and I seriously doubt there’s an appetite for it now," said Gary Rose, professor of political science at Sacred Heart University in Fairfield, Connecticut.
A lot of people, he said, don't resent the rich as much as some progressive Democrats.
“I think if you polled the American people, a lot of people want to get rich themselves and it’s part of, if you will, the American Dream,” Rose said. "We’ve never really had in this country a tremendous appetite for taxing the rich because getting rich ... is really part of who we are and what separates this country from many Democratic socialist countries.”
A wealth tax bill in California never even got a public hearing last year. Gov. Gavin Newsom, a Democrat who was just elected to a second term in a landslide, has actively campaigned against efforts to increase taxes on the rich.
His opposition helped sink a 2022 ballot initiative that would have raised taxes on the rich to pay for electric vehicle charging stations and wildfire prevention.
In Connecticut, Democratic Gov. Ned Lamont, a multimillionaire, says he wants to focus his second term on reducing taxes rather than raising them.
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Associated Press Writer Audrey McAvoy in Honolulu, Hawaii and Adam Beam in Sacramento, Calif. contributed to this report.
California lawmaker joins other blue states in latest attempt to tax rich people
Mackenzie Mays
Thu, January 19, 2023
Even in progressive California, passing a new tax on ultra-rich residents is a longshot. But a Democratic lawmaker is trying again, this time flanked by similar efforts in other blue states.
San Jose Assemblymember Alex Lee plans to introduce a bill that would impose new taxes on California's "extremely wealthy," at a rate of 1.5% on those worth more than $1 billion starting next year, and at 1% for those worth more than $50 million starting in 2026.
If passed, the tax would affect 0.1% of California households and would generate an additional $21.6 billion in state revenue, according to Lee.
"This is all in the spirit of making those who are not paying their fair share pay what they owe," Lee said, pointing to a ProPublica report that exposed how the world's richest people use legal loopholes to avoid paying income taxes, instead amassing wealth through assets like stocks that are not taxed unless sold.
Lee's proposed tax focuses on a person's "worldwide wealth" — not just their annual income — including such diverse holdings as stocks and hedge fund interests, farm assets and arts and collectibles. It's similar to proposals progressive Sens. Bernie Sanders (I-Vt.) and Elizabeth Warren (D-Mass.) championed during the 2020 presidential campaign, and to a plan President Biden floated last year that never passed Congress.
In the absence of a federal wealth tax, the State Innovation Exchange, a progressive nonprofit, and the State Revenue Alliance, which works with labor groups to call for taxing rich people, gathered a handful of states to create policy as part of the "Fund Our Future" campaign. The California bill was announced as a joint effort on Thursday alongside officials promoting similar wealth taxes targeting capital gains and "unrealized gains" in Connecticut, Hawaii, Illinois, Maryland, New York and Washington.
"States are leaning into their power. They're reminding us that states are the laboratories of democracy," said Charles Khan, who serves on the advisory committee for the State Revenue Alliance.
But the initiative faces an uphill battle in California despite the Democratic stronghold in the state Legislature. Similar attempts by Lee have failed before, and Gov. Gavin Newsom has shown no signs of supporting such a measure.
Newsom parted with his own party last year when he came out against Proposition 30 on the November ballot, which would have raised income taxes on the richest Californians and used the money to subsidize electric vehicles and suppress wildfires. The governor said that plan was "fiscally irresponsible" and criticized Lyft for bankrolling it, calling it a "cynical scheme to grab a huge taxpayer-funded subsidy” because ride-hailing companies must add more electric vehicles to their fleets.
Another measure that would have raised taxes on California's richest in order to fund pandemic public health programs also lacked Newsom's support, prompting organizers to keep it off the 2022 ballot.
In the Legislature, past attempts at a wealth tax have not made it far. Last year's version was basically dead on arrival and did not get taken up for a vote in a single committee.
But Lee believes the legislation is more likely to succeed this time around, in part because of California's projected $22.5-billion budget shortfall. Revenue from the proposed tax would go to the state general fund.
"This is how we can keep addressing our budgetary issues," he said. "Basically, we could plug the entire hole."
Lee said the national push also helps thwart concerns that California's richest will leave to avoid new taxes, as more states could do the same. "It's a 'they can run but they can't hide' situation," he said.
A report by the nonpartisan California Policy Lab found that there’s “little evidence that wealthy Californians are leaving en masse,” but the threat of such a loss remains.
That's because California’s progressive tax structure makes the state budget disproportionately dependent on the wealthiest residents — and was largely to thank for the state's flush years even during the worst of the COVID-19 pandemic.
The bill is supported by the California Federation of Teachers and opposed by the California Taxpayers Assn.
California Taxpayers Assn. President Robert Gutierrez said the state should not jeopardize losing its top earners at a time of economic uncertainty. He also questioned the fairness and practicality of a first-of-its-kind tax on assets and total wealth.
“When would the state determine the tax on stocks, whose value can change dramatically from minute to minute? Would California’s tax auditors travel around the globe every year to attempt to locate and verify the value of one-of-a-kind artwork, vehicles, iconic Hollywood props and other items whose market value can’t be known with any degree of certainty?" he said. "Would wealthy individuals stay in California and wait for these questions to be answered?"
But Emmanuel Saez, an economics professor at UC Berkeley, said the initiatives can work successfully and make a significant difference in "restoring tax justice."
"Our current tax system, both at the federal and state levels, fail to tax the enormous wealth amassed by billionaires. Billionaires can keep profits inside their businesses and if they don’t sell their stock, they can avoid the individual income tax. If they retire in Florida and sell their businesses then, they will never pay income taxes in the state where they built their fortune," he said. "Relative to their true economic income, billionaires end up paying a lower tax rate than the rest of us."
The bill's odds of passing are further complicated by the legislative procedures required to make it law.
As a tax increase, the bill requires approval from two-thirds of the lawmakers in both houses. In addition, a two-thirds supermajority would have to support an accompanying constitutional amendment to lift the current cap on taxing personal property. Then the proposal would go before voters for final approval.
This story originally appeared in Los Angeles Times.
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