Governor Gavin Newsom’s office confirmed this week that Newsom opposes Assembly Bill 259, wealth tax legislation introduced in January by Assemblyman Alex Lee (D). AB 259, if enacted, would levy an annual 1.0% tax on worldwide assets exceeding $50 million. Net worth above $1.0 billion would be taxed at a 1.5% annual rate.
Governor Newsom said a wealth tax was “not part of the conversation” and that such proposals were “going nowhere” in California when a state wealth tax was first floated in Sacramento three years ago, albeit at a much lower rate than what Assemblyman Lee is now proposing. On February 15, Governor Newsom’s staff confirmed with Americans for Tax Reform’s Patrick Gleason that, even with a more than $22 billion budget deficit, Newsom remains opposed to a prospective wealth tax, including the one that would be created by Assemblyman Lee’s new bill.
When the new wealth tax bill was introduced in California last month, Politico reported that Assemblyman Lee and other wealth tax advocates “hope Newsom will be moved by polling that suggests voters approve of saturating the wealthy.” Consider that hope dashed as of this week.
That’s because, even if Lee is able to get his wealth tax legislation passed out of the Assembly and Senate, Governor Newsom’s office made it clear this week that he would veto AB 259 should it come to his desk. This rejection of the latest wealth tax bill to be introduced in the California Legislature follows Newsom’s opposition to Proposition 30, a measure on the 2022 ballot that sought to raise the income tax rate on high earners beyond 15%.
Newsom’s opposition is major setback not just for Assemblyman Lee and cosponsors as of his bill, but for wealth tax proponents all over the country, such as U.S. Senator Elizabeth Warren (D-Mass.), who could end up on a presidential primary debate stage alongside Newsom. Warren and other advocates for a national wealth tax must grapple with the reality that even fellow progressives like Gavin Newsom reject their idea. In defending his wealth tax rejection, Newsom has a lot of evidence to point to demonstrating how wealth taxes have proven to be an unreliable source of revenue and economically damaging form of taxation.
A 2018 OECD report on wealth taxes, for example, finds that risk taking and the propensity for people to engage in entrepreneurship is greatly diminished by a wealth tax. That’s because wealth taxes eradicate after-tax investment returns. Lawmakers in many countries have had to learn this firsthand.
“Over the past 60 years a dozen European nations imposed wealth taxes, but only three still do so today,” Patrick Gleason, ATR’s vice president of state affairs, noted in a February 16 Forbes article on pending wealth tax legislation. “Those European wealth taxes were repealed with lawmakers acknowledging the unintended consequences and economic damage caused by such levies.”
“My predecessor taxed the wealthiest and those who succeeded like never before,” French President Emmanuel Macron said in 2017, explaining his decision to repeal wealth tax. “What happened? They left.”
Lawmakers in eight blue states unveiled coordinated proposals in January to assess wealth taxes and other tax increases targeting high income filers. Despite all the media coverage and hype surrounding these proposals, as Gavin Newsom’s newly-confirmed opposition to the recently-introduced California wealth tax bill demonstrates, few if any of these tax hikes are likely to become law.