Assemblymember Alex Lee Pushes Ahead With Tax on Extreme Wealth

An an effort to create a more equitable tax system, Assemblymember Alex Lee is pushing forward his proposal for a wealth tax on the ultra-rich.

AB 259 proposes to apply a 1% annual tax rate on individuals with a net worth of more than $50 million, and a 1.5% annual tax rate on those with a net worth of over $1 billion. The bill is accompanied by a constitutional amendment, ACA 3, as the California Constitution limits the tax rate on personal property to 0.4%.

“California has more billionaires than any other state,” said Assemblymember Lee. “Ultra-wealthy millionaires and billionaires generate their wealth from California’s robust and diverse economy, while many Californians live paycheck to paycheck. The ultra-rich are able to take advantage of tax-avoidance strategies that ordinary people have no access to, with the wealth they accumulate in stocks and property skyrocketing untaxed. Meanwhile, working Californians shoulder the burden to pay for our roads, schools, infrastructure, and so much more. The state has been a haven for the ultra-rich to amass their wealth, and it’s past time for the wealthiest individuals to pay their proportionate share of taxes.”

While the income tax is successful at taxing most Californians, it is not very effective at taxing the ultra-wealthy. Since most people have to work to make a living, once they get paid, they’re taxed. However, the ultra-wealthy do not need to live off of a salary, famously resulting in CEOs like Mark Zuckerberg, Larry Ellison, and Larry Page taking $1 salaries and ultimately bypassing income taxes.

The ultra-wealthy accumulate vast amounts of wealth through assets like stocks, bonds, real property, and other investments. Capital gains taxes can be avoided by borrowing against these assets without selling.

According to the Federal Reserve, the wealthiest top 1% held one-third of all wealth in 2019, with the following 9% owning another 38%. Meanwhile, a ProPublica analysis released in 2021 revealed that the richest 25 Americans pay just a tiny fraction of their wealth in taxes, and some are able to pay little to nothing in income tax, with effective tax rates much lower than the average American.

In 2011, Jeff Bezos was even able to claim and receive a tax credit of $4,000 while his wealth equaled $18 billion, since his tax return reported that he lost money due to his income being offset by investment loss.

While wealth tax skeptics typically cite concerns that increased taxes will result in more people leaving the state, data shows that millionaires have lower migration rates than the general population in states with higher taxes on the rich. Further, according to tax analysts, taxes are not the catalyst for the ultra-wealthy to relocate. The decision of where to live is hyper-personal, such as being closer to family, pursuing top education systems, urban amenities, safe neighborhoods, good infrastructure, and centers of culture.

In the face of a serious budget deficit, Assemblymember Lee’s proposed wealth tax would generate an estimate of over $20 billion in additional revenue annually, half of which would come from the 186 billionaires in California. The tax would only apply to less than 0.1% of the richest families in the state.

“California is confronted with pressing challenges on many fronts, including the severe housing crisis, rising levels of food insecurity, and one of the largest income inequality gaps in the U.S.,” said Assemblymember Lee. “As we tackle a major budget deficit, the state has to find ways to sustain investments for all Californians, especially our most vulnerable populations. Before proposing any type of cuts to our essential programs or pausing investments in our infrastructure, we should evaluate equitable revenue generating measures.”

AB 259 will be heard by the Assembly Revenue and Taxation Committee on Wednesday, January 10, 2024.

“CFT is proud to support AB 259 and ACA 3,” said Jeff Freitas, President of the California Federation of Teachers. “Billionaires and mega-millionaires should pay what they owe in taxes. Working families shouldn’t have to subsidize the ultra-rich so that our communities can have the schools, roads, and essential services they deserve.”