In Wealth Tax, California Looks Toward the Future

Drei Kubik | Unsplash

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A year ago, in a time before the Coronavirus upended our economy and made taxing the rich more urgent than ever before, the idea of a wealth tax was all the rage in the 2020 Democratic presidential debates. First introduced by Senator Elizabeth Warren (D-MA), a wealth tax would go miles towards curbing our country’s inequality by laser-targeting extreme wealth held by the likes of billionaires such as Jeff Bezos and Bill Gates. That extreme wealth was unconscionable then, but in the time of COVID-19, it’s downright inhumane – but wealth taxes have largely faded from the political conversation.

California, however, is pushing wealth taxes back to the forefront of our economic policy debate. Last week, a group of California state legislators led by Assemblymember Rob Bonta (D-Oakland) officially proposed a state wealth tax that would target the state’s super-rich to the tune of $7.5 billion. The tax, set at a mere 0.4% of an individual’s net worth that exceeds $30 million for single and joint filers and $15 million for married couples filing separately, would be the first wealth tax ever enacted in the United States. 

That would be a landmark in our country’s history, and it couldn’t come a moment sooner.

Wealth taxes are uniquely suited to solve so many of our economic woes as a country right now, because they represent a modern solution to a modern phenomenon: extreme wealth inequality, and the inability of existing tax policy to address it. And with the COVID-19 crisis wreaking havoc on state and local budgets, there’s never been a more urgent time for states like California to try and rectify that issue. A wealth tax is the perfect way to do it.

For much of our country’s history, traditional policies like income and estate taxes were able to adequately curb inequality and create a somewhat fair taxation system. But over the past several decades, deep-pocketed special interests have chipped away at income tax rates and carved out loopholes and special tax breaks to benefit themselves. That fact, along with the deregulation of Wall Street in the 1980’s and the disastrous consequences of trickle-down economics, has increasingly concentrated wealth in the hands of the top 1 percent of households and held in places that traditional tax policy is simply too outdated to handle. 

Wealthy folks, for example, can purchase fine art, real estate holdings, or hold unrealized capital gains that all accumulate wealth over time and contribute to their net worth without ever being taxed. As Senator Warren described it on the campaign trail, millions of ordinary folks already pay a form of wealth tax in property taxes – a wealth tax simply involves making a “really, really, really rich person pay a type of property tax too, not just on their real estate, but also on their stock portfolios, the diamonds, the Rembrandts, the yachts, and more.”

But what makes a wealth tax a truly ideal 21st century solution is that it’s a tax laser-targeted at only the super-rich. As inequality skyrocketed over the past half century, the tax burden has disproportionately shifted away from the wealthy and onto the poor. In 2019, for the first time ever, America’s 700 or so billionaires paid a lower tax rate than the working class. For as much talk that wealth tax proposals get for their potential to raise massive amounts of new revenue, it’s also worth repeating that they are incredibly well-suited to restore fairness to our tax system.

California’s wealth tax would affect just 30,400 of the wealthiest state residents in a state of over 40 million people. The fact that enacting such a small percentage tax on such a tiny group of people could raise $7.5 billion is an indictment of California’s inequality, certainly, but it also displays the elegance of the proposal. This bill would target extreme wealth that no one individual could ever hope to spend in a lifetime anyways, and place it back in the hands of the people who desperately need financial help to survive the pandemic. 
Though the bill won’t be heard before California’s state legislature adjourns on August 31, proponents are planning to move it forward “on day one” of the next session. That’s something we should all be excited about.

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