Most people these days are still suffering from the pandemic. The IRS and state governments feel the revenue pain as well. One California bill with multiple co-sponsors would increase the state’s already stratospheric summit 13.3% income tax rate to 16.8%.
Not shocked yet? The latest tax some state legislators want to collect is a .4% wealth tax. The ‘leader’ in state taxes already, this would first be wealth tax which is the target group heel Rich. This is not on income they earn, mind you, but on their wealth themselves. A summary of the bill states: “AB 2088 imposes a net tax on the first nation, and sets a tax rate of 0.4% on all net worth over $ 30 million.” California House of Representatives Rob Bonta, D-Oakland, proposed the legislation. The tax would apply to the net profits of about 30,400 Californians, “increasing about $ 7.5 billion annually,” the summary claims. “The tax takes into account all the assets and liabilities held by an individual, globally, and captures the enormous levels of accumulated wealth held by the top 0.1% of Californians.”
Several American tickets on top of the California flag
Several public employee and trade union groups are predictably behind the bill. These include environmental groups such as the Sierra Club. The target audience may see a move from California, but in the meantime some observers think the wealth for tax money should be equal heger. There are also administrative nightmares. Wealth is not about income, but about assets. How do you determine the value of everything you own? What about, for example, stock options in private companies? You can bet you would say one figure, and the notoriously aggressive Franchise Tax Board might say something very different. That could ask more than just billionaire CEO Elon Musk threatening to leave California.
Wealth tax aside, high taxes in California are nothing new. The state already has a highest rate of 13.3% in the nation, and another recently introduced tax bill would increase it retroactively to 16.8%. Proponents say the higher taxes would ensure a more equal tax structure. Even before any proposed changes pay off, the top 1% of California income earners pay most of the state’s personal income tax revenue (a whopping 46% in 2016). The top 5% accounted for two-thirds of personal income tax that year. However, AB 1253 (Santiago) would impose itself heger taxes, and with retroactive until January 1, 2020.
As a precaution, high-income Californians will still pay 1% on income above $ 1,181,484, 3% on income above $ 2,362,968, and 3.5% on income above $ 5,907,420. These dollar thresholds look strange, but are $ 1M, $ 2M and $ 5M plus adjustments to inflation. They would only hit California very high incomes, and the California tax rate on income would go over $ 1 million from 13.3% to 14.3%. California’s highest rate would be a whopping 16.8%. You can read Assembly Bill 1253 for yourself. If it continues, it could cause some Californians to hop into their Teslas and move to Texas, Nevada or Washington state, which has no state income tax. Indeed, moving to any other state would mean lower state taxes. The current top rate of 13.3% – what it’s worth noting is the same on ordinary income and capital gains – dates back to 2012. With the amendments to the 2018 Federal Tax Act, 13.3% pays in non-deductible state taxes (after a $ 10,000 cap) is even more painful.
Moving sounds easy, but if you are not careful how you do it, you could end up leaving California, but still be asked to stay to pay California taxes. California has a wide reach in other states, and in some cases, California can assess taxes, regardless of where you live. Should this discourage you? No, but it pays to know what you’re up against.
Many former Californians have a hard time distancing themselves from California, and they may not have plans on tax authorities in California following them. Those rules are memorable, and when it comes to combating California taxation, litigation counts. Your exposure to control can also be daunting. The IRS can control for 3 or 6 years, but California can sometimes audit ivich. Several things can indicate the FTB unlimited how much time to check on you. California, like the IRS, gets unlimited time if you never file an income tax return, yet some people worry that getting rid of California taxes could mean hello-resident audit. However, the fact that the upper tax rate could be increased retroactively could put some people on the road, despite the audit risk.
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