Soak the Rich Scheme
California legislators seek a Wealth Tax that applies to anyone who has lived in the state for the last 10 years.
A pack of Democratic lawmakers in California are proposing a wealth tax for the state’s richest citizens, forcing them to pay more essentially just for owning a lot of stuff.
“The California Wealth Tax would add critically needed revenue for California by creating a more equitable tax structure,” [assemblyman] Rob Bonta said in a press release promoting the bill. “
The proposed wealth tax would add a .4 percent tax on a taxpayer’s net worth for net worths that exceed $30 million, which Bonta estimates will affect fewer than 31,000 Californians. From this proposed wealth tax, he estimates the state will raise $7.5 billion per year. The state currently faces a $54 billion budget deficit due in part to economic downturns from the coronavirus pandemic.
You don’t even need to ask whose bright idea this was because Bonta is actually quite happy to reveal that the bill’s co-sponsors are the California Federation of Teachers, the California Teachers Association, and the Service Employees International Union.
Blatant Theft
A wealth tax is blatant theft that would likely not stand a legal challenge.
Yet,higher and higher taxes are exactly the kind of thing one can expect more of.
In states like California, Illinois, and New Jersey, the call for higher taxes will never stop.
Even if a wealth tax is ruled unconstitutional, Bonta and his ilk will just seek higher and higher progressive rates on income.
Professors Urge Higher Taxes in New Jersey
Also note that New Jersey Urged by Economists’ Group to Raise Taxes to Balance Budget.
New Jersey should increase taxes on wealthy residents and big corporations to balance its budget, a group of state college economics professors wrote in a joint letter to Governor Phil Murphy and legislative leaders.
Spending cuts would be counterproductive, and would have a more negative impact on residents than raising taxes, the group wrote. A tax-rate increase on those earning $250,000 or more would raise about $1.5 billion in new revenue each year, while extending a corporate tax surcharge of 2.5% to businesses with profits of $1 million or more would provide another $425 million, according to the group of more than 90, mostly professors from Rutgers University and other colleges in the state.
Get the Hell Out Now
If you live in states like California, New Jersey, and Illinois, get the hell out now.
We did.
But please note that It Takes 3 Weeks to Escape Illinois
Why 3 weeks? That’s how long it takes to reserve a one-way U-Haul outbound.
“Everyone is leaving. No one is coming,” a U-Haul agent told us a few weeks ago.
Mish
Wouldn’t the federal government raise the legality issue of competing with the IRS? Then there is the problem of taxation without representation. California cannot just tax someone for moving to another state. They’ll be paying that state’s taxes, and imposing a tax in another’s jurisdiction canot be legal in any way.
Many of those in this wealth category have multiple residences worldwide. I suspect they are trying to design the law to prevent people from avoiding the tax by only living in the state 179 days a year for example. The tax is proposed to work on a sliding scale based on the time in the state. Seems like a reasonable approach, though devil is often in the details…
One of the results of limiting the powers of the federal government and giving more power to the states, is that states also have the authority to tax – my understanding is that this is a concurrent power shared between state and federal government. I don’t think the taxation without representation is an issue – many who do not reside or vote in California still own property in the state and are subject to property taxes, which are a form of wealth tax.
Look at who sponsored it. Seems like the teachers union is looking for another source income for the retirement system.
I thought Proposition 55 on the 2016 ballot which extended the top income tax rate of 13.3% on wealthy Californians until 2030 meant they were already paying their fair share? I swear I remember SEIU and the California Teacher’s Association said it was needed so they’ll be paying their fair share during all the commercials.
About the 3 week U-Haul story. I have my own anecdotal version.
Here in the RDU area I ride my bike regularly past several U-Haul and Penske ‘vendors’. For the last 6 months or better, the lots are basically emptied by Friday afternoon. Mon/Tue they are packed to the level of overflowing. Wed/Thurs they have to haul them out stacked as many as they can on tractor trailers I presume back to the states being bailed on. These are everything from the large Van size to the full blown box truck size.
Happens like clock work. You have people buying houses sight unseen (maybe Internet viewing) starting bidding wars to move here and probably vote in the same political types just to do it all over again.
I don’t think it’s going to work out like they think it would. I predict ever increasing taxes everywhere.
“California legislators want a wealth tax on the rich, even if they flee.”
…
There needs to be wealth distribution … or civil unrest will continue to grow.
Having said that, there is a way outside of raising taxes on high income / wealth persons. QUIT with the incessant bailout of the rich by Federal Reserve / tax loopholes (and other legislation cronyism) which keeps their wealth intact.
Take away the life lines … and (the rich) assets will fall … closing the gap between Haves and Have Nots.
Much, if not most,of the wealth that exists is in unrealized form. How do you propose to extract it?
The only way this money is going to be obtained is when the wealthy are forced to sell assets to raise it. That will have impacts far beyond the wealthy. Anyone with a retirement fund / pension will take a hit. If the wealthy supposedly own nearly everything to whom will the group as whole sell to get the money without a significant price cut ? The stock market alone is “valued” at over $30 trillion dollars. The bond market is even bigger. M1 + savings accounts totals a bit more than $14 trillion. The reality is this supposed wealth can never be collectively realized as it would precipitate an asset price collapse.
The Fed is not out there bailing out the wealthy as a class. They have bailed out some politically connected wealthy folks and are protecting the banking system and money markets that are the lifeblood of government and business borrowing. It’s a problem of the Fed’s own making but it is too far gone to let it go now. A collapse in those areas affects everyone and the results would be no prettier. And while the Fed has caused this the fact is they were set up to do it. This is Congress’s doing. With a Fed there is support for Congress’s deficit spending without interest rates blowing sky-high or taxes being raised to revolt levels. Instead, the Fed takes the heat. That is an unwritten part of their charter but one should realize this is what the government really wants, no matter how hostile they act toward the Fed publicly. Really want to change things going forward? Force Congress to abolish the Fed and take control and responsibility for money creation and make the hard choices between taxation and inflation that can be laid right at their feet with none of the Fed obfuscation. But it’s another change that would almost certainly lead to social unrest because it would not be a tranquil transition.
Far too many people struggle because they cannot differentiate between “want” and “need.” I live in mobile home in a lower-class neighborhood in north central Florida and see this in action on a daily basis. A couple years ago a local won a fair amount of money in the lottery. He lived in a mobile home. What did he do with his windfall? Went out and bought cars for himself and all his kids as well as a boat. Cigarettes, alcohol, drugs, trucks where a small sedan would do, family pets (pits and other large macho dogs are popular), eating convenience food from fast food joints (and just throwing the garbage on the ground – these people cr*p where they live). A couple years ago CPS and animal control showed up at this dilapidated mobile at the end of my street. They hauled out 50 animals and took an infant away. How in the world are they feeding 50 animals, much less taking appropriate care of them?
Much of this is an envy issue and while you can try redistribution it is only a temporary solution as you could start everyone off equally and at some point the distribution will go right back to something like what it is now. There will be differences among individuals as to which class they wind up in but the overall percentages aren’t going to change much. Human behavior will drive it. Unless you keep the trees equal by continually cutting the taller ones back but that cannot be done for long without negative effects.
Meanwhile folks such as Buffett and Gates continue to donate away their real wealth as the share counts representing their ownership in their companies continues to drop. A recent Seeking Alpha article on Buffett’s latest donations showed the drop in A shares held by him since he began donating in 2006 and it is nearly 50%. His percentage ownership of Berkshire Hathaway has been cut approximately in half. Gate’s ownership in Microsoft has dropped to 1.3%. Those are real wealth numbers, not fantasy numbers based on price changes at the margin.
Of course, if redistribution comes to pass those who are wealthy and in government will likely avoid it. That’s why they are in government. If rules are going to be made that affect you then make sure you are involved with making the rules.
RE: “There will be differences among individuals as to which class they wind up in but the overall percentages aren’t going to change much. Human behavior will drive it.”
And the existing “systems” will support it.
Those “systems” that Stuki likes to lambaste all the time …
The “systems” that incrementally increase income by percentages that actually often increase with income … while making all expenditures for the same items “fixed”. Simple differential equations will tell you what must necessarily occur over time.
The “systems” taken advantage of by those who long ago realized the nature of those “systems”, that doing actual productive work wouldn’t get them very far, so they shifted their efforts to “managing real estate and portfolios” and “skimming” from such management on behalf of others in some cases. Becoming willing/eager participants in the very “corrupt casino” they know benefits from the Fed they complain about all the time.
All the while complaining about how the Fed always bails out failing/non-productive business entities while simultaneously laughing about all the fresh dollars the Fed keeps pouring into their pockets via their “managed assets”.
RE: “If rules are going to be made that affect you then make sure you are involved with making the rules.”
That old well-know paraphrases of the Golden rule … “Those who have the gold make the rules .. and those who make the rules always make the rules to increase their own share of the gold”
With “gold” not always being literal of course …
Human behavior will drive it.
“Those who have the gold make the rules .. and those who make the rules always make the rules to increase their own share of the gold”
Which is why the only legitimate governments, are ones small enough to render who makes the rules is rather irrelevant, since they can’t do much of anything anyway. Cue Jefferson’s influence over trappers in what was to become the Wyoming territory. Or the current day puppet government in Kabul, wrt to Afghan tribal regions. That’s what “limited government” means: No standing army, no money printing central bank. A population better armed than the presidential security detail etc.
“Much, if not most,of the wealth that exists is in unrealized form. How do you propose to extract it?”
…
I never said a word about extracting.
Assets are priced on the margin. Debt mules in the bottom 80% just need to take the credit hit and walk away from their obligations. Trust me, asset prices would fall in a hurry (absent government intervention). Allow true price discovery. Asset deflation would bleed over into general CPI. Due to slowing / aging demographics + gains in productivity natural state of prices would be disinflationary / deflationary. As Mish has banged on the drum many times, BIS concurs deflationary winds BENEFICIAL.
“The Fed is not out there bailing out the wealthy as a class.”
You’re right about that.
Instead, they are only bailing out the idle, useless and incompetent. Anyone competent enough to create value, benefits from “assets”, which economically speaking are largely goods with the potential to aid in production of other goods, being priced lower. As it makes wealth production less costly, businesses more competitive and a greater variety of business models viable. Only deadweight leeches to incompetent to add any value, benefit from artificially pumping up prices of things, so that their leeching selves can collect more unearned rent by feeding off of productive people.
The way to extract any wealth, is to lower prices. Of everything. From eggs and milk, to shares of Google. The lower prices are for the same exact thing, the more people can afford of it, hence the wealthier they are. Lower prices for the same thing, is THE tide which lifts all boats. While higher prices, sinks them all, except for those who are almost directly handed a cut of the loot which is stolen from everyone else by way of asset pumping, price supports and debasement.
QUESTION: How would the retroactive part work on people who have left nine years ago?
I would think that aspect would torpedo it in the courts. But one never knows these days.
“Are you or have you ever been a resident of the state of California?” [lol]
“If you live in states like California, New Jersey, and Illinois, get the hell out now. “
This statement makes absolutely no sense whatsoever and is just fear mongering hype. Most people would not be subject to the wealth tax, but would benefit from the improved services provided by the tax revenues. So the benefits resulting from the wealth tax would make the state more attractive to live in for most everyone. If you are wealthy enough to fall into this proposed tax bracket, then you will probably live where you want, regardless of this tax. California needs wealth and progressive tax revenue in order to make the state an attractive place to live, and to address social issues, which are critical to the state’s continued economic success.
Nonsense! I’ll have 30 million any day now, and losing 0.4% of that would literally kill me. I’m running for the hills!
LOL! And people wonder why things are screwed up in this country, with people having a net worth of over $30 million running for the hills because of having to pay $120 thousand in tax. I mean that’s might be a whole week’s (day’s?) salary! I’m not sure I want them in the hills anywhere near me.
But there is always that “slippery slope” argument … why, 5 years from now it will be .6% and that will be … oh yeah, that will be $210 thousand in tax because their net worth is up to $35 million.
Let’s not forget how bad off Bill Gates would be if such a wealth tax were ever imposed. I mean after all his vaccine investments pay off … man, what hardship all these multi-ten-millionaires and billionaires will be facing … Bill might have to start using a can of tennis balls for more than just one game, maybe for an entire set for crying out loud!
Meanwhile, there is a disabled veteran like Herkie and tens of millions (or more) in similar or more precarious positions … maybe Bill can donate all the old used cans of tennis balls to help them out a little … but only after they take his vaccine …
Sadly, the only words states like CA, IL and NJ can’t seem to grasp is “that’s enough”. It will never be enough. What has all of the progressive taxes on the rich done for working class people like me? NOT A DAMN THING! They still stick it to us with increases to gas taxes, taxes on utilities, more tollroads, parking fees, auto fees……it will never end. BURN IT ALL DOWN!
I am glad that Trump stopped the SALT preference that was in play for wealthier states. As far as I am concerned that and appointing Gorsuch to the Supreme Court are his main accomplishments.
As you rightly point out, Mish should have stated his proposition differently. Instead of saying “If you live in states like California, New Jersey, and Illinois, get the hell out now.”, he should have said “If you are a productive, income earning person, and live in states like California, New Jersey, and Illinois, get out now, but if you are a person that lives off state benefits, you should move to California, New Jersey, and Illinois.”
Property taxes are wealth taxes and every state has them. So I think it would be difficult for the Supreme Court to declare them illegal. Especially when the Founding Fathers paid them at the time.
However, I agree that when a state reaches the point that exists solely for the benefit of state government workers, it is indeed time to get the hell out.
From my time here in California the state is just better off and needs people to leave in order to have a better quality of life for those that stay. It will continue to attract wealthy Asian laundered money. At some point all states will be forced into a restructuring of epic proportions not because of covid but because of globalization of the labor force.
Wealth taxes are prohibited at the Federal level, but states can implement them, and as you rightly point out, always have.
The german Bundestag is also toiling with the idea of “asking” the wealthy to contribute to the “common good”.
A wealth tax makes more sense than an income tax, since most of the super wealthy don’t really make income. It would be better to reduce or eliminate income taxes except on top earners, and in place of the eliminated taxes have wealth taxes placed on the ultra rich.
Untrue. An asset is an asset only because it produces an income. That is why real estate in Mozambique is not an asset but it is in the Bay Area. The treatment of depreciation, interest, capital gains, and other things is what decides if income from assets contributes to tax or not.
So, Tesla isn’t an asset, then? And neither is Mar-a-Lago, unless Trump starts renting it out?
“A wealth tax makes more sense than an income tax”
+1000
Nothing makes less sense than taxation of economic activity. Not only does it require the most intrusive spying apparatus since the Stasi, but it also discourages the on and only thing which creates more wealth.
There already are wealth taxes, which are known as “property taxes” (and “personal property taxes” for businesses). The are so many ways to tax people. You can tax them on things they own (property taxes), income they earn (income taxes), money they spend (sales taxes), special things that you want to discourage (excise taxes), things they import (duties), things they transfer (transfer taxes), property they hold when they die (estate taxes), property they give away (gift taxes), property they pass to heirs (inheritance taxes), taxes when you hire people (employment taxes), and so much more (especially “fees”). You can even tax people indirectly, by taxing corporations, who then build the tax into the price of their products. Even with all of these ways to tax people, it’s never enough, because while the money you can take via taxes is finite, spending can be infinite.
Here’s more reasons to bail on CA!
New highway tolling eyed in Bay Area
55 mph freeway speed limit is also under consideration
By Zachary Clark | Daily Journal staff
August 18, 2020
As construction of the express lanes project progresses on Highway 101 in San Mateo County, regional transportation officials this month announced a plan to dramatically expand freeway tolling in the Bay Area.
According to a letter dated Aug. 1, the Metropolitan Transportation Commission wants to eventually implement congestion pricing on all lanes of many if not most Bay Area freeways. Express lanes, including those coming to Highway 101 in 2022, charge a toll on just one lane in each direction, though buses and carpools of three people or more can ride for free.
“A wealth tax is blatant theft”
And, just as blatantly, less so than any possible income or sales tax. Not to mention the real biggie these days: Debasement, regulation and “mandate” (as in madatory “insurance”, spending etc.) taxes.
Out of all of them, property taxation is far and away the least directly pure theft. Doesn’t mean it’s not theft, just that all the others are much, much more so.
I prefer sales tax, though the powers-that-be hate it because it promotes saving rather than spending.
It’s also inefficient as heck, and requires granting the junta massive, Stasi like, spying access in order to implement.
Whereas property taxation is simply (over-)charging for the service of protecting property. Which is what government is supposed to be doing anyway. No spying required, as you can’t reasonably expect government to protect your property unless you let them know what it is. You’d be talking monopoly pricing, sure, which is how general fund revenue would be collected. But at least you’ll avoid the spying and ratting out etc. which is inevitable with any activity taxation scheme, whether nominally collected on sales or income.
You’d also avoid the “All the stuff regular people sell is subject to sales taxes” but, always conveniently, all the stuff Goldman Sachs and other banks sell, is magically not…. Funny how all supposedly “fair” taxation rackets end up working that way…..
Instead, if you lay claim to own something, and want government’s help in protecting it, pay them. It’s noone else’s duty to do so. Or, get some rifles and sandbags, if that’s more to your liking.
Interesting, I hadn’t looked at it that way before. Still, when I pay off my mortgage I like to know I really own my property. When government can charge me whatever they want, it feels like I am paying rent, and I could always end up losing my property if at some point I can’t pay the (theoretical) jacked-up rate.
But you make a lot of sense on the ‘spying on every transaction’ and ‘protection’ points.
If you want government to protect your property, someone has to pay them at least something to do so. Cops, courts, deed registers etc. aren’t free to set up and operate. Why on earth should that someone be anyone but you?
Run wherever your can or want to: “There is hope, but not for us.”
Franz Kafka
Dont worry Mish. Eventually you run out of states to run to because the employment problem isnt a state to state issue it is because of globalization.
Also there is always foreign black money coming into states like California and cities like Vancouver. The truth is most of the economy is simple money laundering from drugs and other illegal activities.
After 8 years of Obama and 4 years of Trump ,perhaps it’s time to declare the US a disaster area! The entire country is a complete and total mess,Cali is completely insolvent,that goes for pretty much every state.And sorry you can’t print your way outta this mess.
And don’t forget 8years of Bush 2/Cheney 1 before that…those idiotic wars added alot to the tab as well.
Cash strapped cities and states are trying to get the Federal government to pay for state deficits (borrowing for bailouts). This is an indirect form of printing money.
Of course we can print our way out of this. It’s call inflation and it’s the only solution now.
The Swiss town that taxes its wealthy without scaring them away https://www.ft.com/content/87ccaf2e-2ddd-11e9-8744-e7016697f225
Switzerland was smack dab in the middle of 2 world wars. Unscathed. How’d that happen?
Germany and Italy, separated by Switzerland, were not at war.
Do you snatch a place whose main value is the people? Welcome to the post-industrial world. This question will come up a lot in the next half century. The PRC’s snatch of HK will be instructive.
Population part Italian, French, German but neutral and not taking position. Like Spain, Switzerland “had to” deal with whoever to a satisfactory degree to not go offside with whoever.
Spain had dealings with the nazi party also, was helped during civil war by both Germany and Italy, but that was anti-communist tenet while at same time say Cataluña was modeling on nazi youth. So there was no great trust from Spain, after civil war Spain kept whatever relations did not offend, but didn’t large pact with Germany or Italy, it is said Spain frustrated German military use of its territory.
I don’t like to generalise but here I am speaking of the common position, sure anyone could find examples from just about any collective to argue with but that is not the point.
What I am saying is the origins of the world wars were not Swiss or Spanish (I bring in Spain because there are parallels in its position) originated or supported, people have to look closer to home at the power plays of US, France, UK, Russia, Germany, Italy maybe, including supranational entity such as finance, and so on to find answers to that, taking in the social and political trends that were occuring at the time as well , just an example
because the whole evolution started in the nineteenth century at least, the first world war and social revolution were part sovereign monarchic order set into conflict with revolution and new ideology competing into the fray, the interwar being feasibly just a pause.
Welcome to another exciting episode of California Smash and Grab Politics. California politicians seem to think they are a separate country.
You seem unfamiliar with the concept of states rights.
California is governed by a bunch of reckless democrats state and big cities….the state assembly is at least 80% Democrat and they push through what ever they want without any opposition for checks and balances . The Democrats have destroyed this State and it is on the same path as any other blue State …Illinois , New York etc . The Democrats have been very distructive in most blue states. These states should never be aloud to get a bailout…..they need to fix it themselves.
Mish, wouldnt it be faster to drive to someplace not too far away (St Louis, Milwaukee, Indianapolis, etc), drive the U-Haul back to Illinois, load up your stuff then get the heck out of Dodge?