New California Tax?

[jkeeb]

From Taxprof:

California Ballot Initiative to Impose 45% Income Tax, 55% Wealth Tax & 36%-54% Exit Tax
A California activist is trying to gather the 694,354 signatures needed to place a tax initiative on the ballot that would:

Impose a new 35% income surtax (in addition to federal taxes and the existing 10.3% top state rate) -- 17.5% (on all of the taxpayer's income) when income exceeds $150,000 (single)/$250,000 (joint), and an additional 17.5% (again, on all of the taxpayer's income) when income exceeds $350,000 (single)/$500,000 (joint).
Impose a one-time 55% wealth tax on assets exceeding $20 million held by a California resident or held in California by nonresident.
Impose an exit tax of between 36.5% to 54.3% on both income and unrealized appreciation in asset values over $5 million when a resident dies or leaves California.

They may get the signatures, but I would think the initiative would have a hard time passing.
What idiot thought of this???

[Demosthenes]

Wealth Tax. Constitutional Amendment and Statute.
Summary Date: 08/04/08 Circulation Deadline: 01/02/09 Signatures Required: 694,354
Proponent: Paul McCauley

Imposes one-time tax of at least 55% on property exceeding $20 million of a California resident or held in California by nonresident. Imposes one-time tax (between 36.5% - 54.3%) on income exceeding $10 million when resident dies or leaves California. Imposes additional 17.5% tax on total incomes of taxpayers with income exceeding $150,000 if single, $250,000 if married; 35% if incomes exceed $350,000 if single, $500,000 if married. Creates tax credits. Requires State to acquire shares of specified corporations to influence environmental practices. May exempt new revenues from education funding requirements. Summary of estimate by Legislative Analyst and Director of Finance of fiscal impact on state and local government: One-time increase in state revenues potentially in the low hundreds of billions of dollars from imposition of a wealth tax, and ongoing increase in state revenues potentially in the billions of dollars from imposition of the tax on certain people dying or leaving the state. This revenue would be allocated to accomplish various goals related to environmental protection. Potential annual net increase in personal income tax revenues in the tens of billions of dollars annually. The first $7.5 billion annually would be allocated to the state General Fund with additional revenue allocated for environmental protection. Unknown state and local revenue reductions – potentially in the tens of billions of dollars annually – due to changes in taxpayer behavior. (Initiative 08-0012.)

[Nikki]

Tax imposed when resident leaves California ????

Somehow this seems repugnant to the Constitution.

Is the State interfering in inter-state commerce? Is it attempting to impose a tariff?

That provision probably won't even make it past the ultra-wacko Apppeals Court for the Western region.

[Arthur Rubin]

I wondered about that (interstate commerce), myself, when I read the description. I'm surprised Attorney General Moonbeam approved the [s]description[/s] title.

[Famspear]

I would begin by looking at Supreme Court cases like:

Crandall v. Nevada, 73 U.S. 35 (6 Wall. 35) (1868).

Evansville Airport v. Delta Airlines, Inc., 405 U.S. 707 (1972).

[Arthur Rubin]

Those are both taxes on physically departing the state. In spite of the apparent contradiction between the two cases, this is a "tax" (although it specifically says it isn't a tax) on changing one's residence out of the state, which strikes me as a completely different matter.

[Red Cedar PM]

The Tax Foundation's Tax Policy Blog has a pretty good illustrative post on this. Damn hippies trying to impose socialism. I have family in CA and love to visit but I don't think I'll be moving there anytime soon.

http://www.taxfoundation.org/blog

California Activist Proposes Wealth Tax and Probably Unconstitutional Exit Tax
Posted on August 25, 2008 by Joseph Henchman and Paul Galindo


Earlier this month, a California activist began gathering signatures to put a state wealth tax on the ballot. The measure would impose a new 35% income surtax (in addition to federal taxes and the existing 10.3% top state rate), and penalize people who leave the state by seizing 55% of assets exceeding $20 million. The money raised would be used to eliminate the state's budget deficit and for purchasing controlling shares in large corporations.

The 17.5% surtax is unusual because it would be on a taxpayer's total (not marginal) income whenever it exceeds $250,000, with another additional 17.5 percent tax on total income (for a total additional 35 percent tax) whenever it exceeds $500,000. In the case of single taxpayers or taxpayers filing as head of household, these additional taxes would be levied on incomes greater than $150,000 and $350,000 respectively.

So say someone has adjusted gross income of $1,000,000 and taxable income of $750,000. Today, their tax bill would be:

Federal Income Tax (35% top rate):
$241,574

State Income Tax (9.3% top rate):
$67,555

Payroll Taxes:
$41,648

Total Income and Payroll Taxes:
$350,777

Effective Tax Rate:
35%


With the new surtaxes, it would look like this:

Federal Income Tax (35% top rate):
$241,574

State Income Tax (9.3% top rate):
$67,555

Proposed Initiative Surtax (35%):
$262,500

Payroll Taxes:
$41,648

Total Income and Payroll Taxes:
$613,278

Effective Tax Rate:
61%


The same person faces an effective tax rate of just 28% if they lived in neighboring Nevada. Being able to cut your taxes in half by moving to the next state over is probably not an incentive California wants to offer. Staying would also mean your tax bill going up by over 74 percent. Marginal rates this high would undoubtedly curtail capital formation, productive investment, and economic activity.

The initiative's sponsors have an answer to this too: hit people leaving with a hefty exit toll. The creatively named "Hasta La Vista Tax" of 36.8 percent is imposed when an individual dies or moves out of California. This exit tax would be on both recognized income and unrealized appreciation in asset values over $5 million. Since this tax inhibits commerce and burdens the right to travel, it is probably unconstitutional.

In addition, existing California residents who stay are hit with a one-time tax of 55 percent on assets in excess of $20 million.

Such enormous wealth and income taxes would probably be the best news Arizona and Nevada could get, because the exodus of capital and entrepreneurship will probably head their way.

The sponsor has until January 2, 2009 to gather the 694,354 signatures needed to place the initiative before California voters.

Recent California blog posts:

California Considers Tax Changes in Budget Standoff, August 22, 2008
Los Angeles Looks to Top Chicago's Sales Tax, August 14, 2008
The California Budget: A Work in Progress, August 5, 2008
IRS Publishes "Top 1%" Data by State -- California's Top 1% in the Crosshairs, August 1, 2008
New Analysis of California's Individual Income Tax Rates, July 15, 2008
California Releases Income Tax Rules for Same-Sex Spouses, July 15, 2008
Proposed Taxes on Porn Both Unconstitutional and Bad Tax Policy, May 28, 2008
Is the Playboy Mansion Tax Coming to California?, May 12, 2008
Federal Gas Tax Holiday Wouldn't Apply to Nevada, California, Oklahoma and Tennessee, May 6, 2008
California Court Rejects "Voluntariness" In Labeling 911 Charge as a Tax, May 6, 2008
California Court Holds that Excessive "Fee" is an Unconstitutional Tax, February 13, 2008