So-called progressive legislators in California recently presented a bill that would introduce an additional yearly tax on wealthy citizens, even if they choose to relocate out of the state. Assemblyman Alex Lee (D), who proposed the legislation, was joined by nine other state Democrats in support of the bill. If successful, it would be effective starting January 2024 and applies to residents with a worldwide net worth of $1 billion or more, although this threshold could drop as early as 2026 to $50 million with a 1% annual tax being levied.

The scope of the worldwide net worth extends beyond just annual income into farmland, arts, collectibles, stocks, and hedge fund interests. The draft includes provisions for contractual claims for taxpayers’ assets, meaning even if they move out of state, they are still liable for payments. In addition to California’s attempt at introducing such a law, seven other states have proposed similar regulations to tax their wealthier citizens: Connecticut, Hawaii, Illinois, Maryland, Minnesota, New York and Washington.

Assemblyman Lee estimates that this bill would affect 0.1% of all households in the Golden State and facilitate revenue worth $21.6 billion; sufficient to close the current budget deficit of $22.5 billion. However, some opponents believe this strategy could push California’s wealthiest citizens away from the state due to its unconstitutionality, something Jared Walczak (vice president of state projects at Tax Foundation) has voiced his concerns about when he commented on how challenging such a taxing system would be to administer, necessitating up to $660 million per year for administrative costs alone ($40k per taxpayer!).

Billionaires aren't paying what they owe while enjoying public investments to build their empires. My colleagues today and colleagues from 7 other states are introducing Wealth Taxes to bring tax justice#TaxTheRich pic.twitter.com/XXFOJx3D3Z

— Alex Lee 李天明 (@alex_lee) January 24, 2023

Patrick Gleason (vice president of state affairs at Americans for Tax Reform) added that Democrat lawmakers think they can “get around” population drain by trying to collect taxes from people after they leave the place, but this remains an unconstitutional action nonetheless.

How would this not be unconstitutional? You can’t charge people taxes who don’t live in your state. They never signed an agreement to pay taxes to a state in perpetuity. This is absolutely absurd!

Photo Credit: Gage Skidmore