California Democratic policymakers wish to increase uber-wealthy people’s tax, but some warn it would only push billionaires to leave the state.
For the hard-hit state of California, raising revenue to aid its ailing economy means a tax hike for uber-wealthy folks is critical. And earlier this month, Democratic lawmakers proposed a new tax scheme that would cost billionaires with nearly 54% of federal and state tax rates.
Tax hike could earn California $7 billion a year
It appears that the proposed tax plan was created following the looming economic crisis, which the pandemic continues to exacerbate. According to the California State Legislature, the measure aims to raise revenue for those who have been hit the hardest to recover, including schools and various businesses.
Under the new measure, tax for uber-rich Californians will be raised for about 1% to 3.5% on incomes over US$1 million and US$5 million, respectively. In return, it could earn the state with an estimated $6.8 billion state revenue a year.
But California already has a top marginal tax rate of 13.3%. And if the new tax initiative would pass into law, it would raise the current top tax rate to about 16.8%, specifically to those who earn more than $5 million.
Federal and state taxes combined would then result in a total of 53.8% tax rates.
A few states are looking to raise money as well by taxing the rich more. New York, for instance, wants to pass the same tax scheme too, proposed by Democratic lawmakers, as a solution to its deepening budget deficits.
Officials warn of possible consequences
The proposal, on the other hand, had sparked a debate, with different leaders across the U.S. expressing their objection against the said tax hike.
The president of California’s Taxpayers Association Robert Gutierrez said that lead uber-wealthy taxpayers to “book a one-way trip” to states with low tax rates.
“The tax hikes would be the tipping point for many taxpayers,” Gutierrez told CNBC.
Governor Cuomo, who appears to oppose the tax hike, also said the same concern. He instead suggested federal tax increase as a solution as New York Democratic lawmakers’ proposed plan will only push billionaires to move to states with lower tax rates.
On a separate talk, he then again warned that if the initiative would come into law, then “you would have no billionaires left.”
In California, the tax hike will only affect the top 0.5% of taxpayers, per California’s Franchise Tax Board. But that small number also accounts for the state’s 40% tax revenues, which makes the tax hike trickier mainly because most of them are in tech and can quickly move to other states.