California is not East Berlin. A wealth tax in California would expedite the exodus.

Written by Apartment Management Magazine on . Posted in Blog

By Jon Coupal

Daily news reports on the great “California Exodus” are not just from conservative outlets. Left-leaning publications such as the Los Angeles Times and San Francisco Chronicle have recently reported on the outmigration of upper-income citizens who, even if not billionaires, still generate a lot of income tax revenue.

The California Legislature held a hearing on Assembly Bill 259 which would lay the foundation for the imposition of a wealth tax. The companion legislation to AB 259 is a proposed constitutional amendment that would, among other things, effectively sweep away Proposition 13’s limits on taxing property.

Fortunately, the idea that California would be the first in the nation to impose a highly unpopular wealth tax is so radical that the proposal was rejected by Democrats as well as Republicans on the Assembly Revenue and Taxation Committee. It didn’t take long for the Democrat chair of the committee to shuffle the bill to the “suspense” file where bad legislation goes to die.

Coincidentally, the wealth tax hearing occurred on the same day that Gov. Newsom released his proposed budget. Things got a little sparky during the presentation with Newsom pushing hard against the Legislative Analyst’s figure of a $68 billion deficit. Newsom contends that the deficit is “only” $38 billion. (But hey, what’s a $30 billion difference between friends).

Newsom saved his most animated criticism for those who highlight the state’s shortcomings, including the significant outmigration of California’s most productive citizens. He especially targeted the editorial page of the Wall Street Journal, which has never been reticent about commenting on the state’s well-deserved reputation for anti-business bias.

But to his credit, Newsom rejected the notion of a wealth tax – at least for now. For taxpayers, it matters little whether the governor’s stance is motivated by politics or a sincere policy position. Either way, we’ll take it.

The problems with the wealth tax proposal – even as half-baked as it is – are legion. But one issue should be especially troubling to anyone who believes both in fiscal restraint and basic constitutional freedoms. That is, could a wealth tax be applied to people who voluntarily leave the state for the specific purpose of avoiding California’s highest-in-the-nation income taxes? AB 259 contains a provision that applies the wealth tax to every “wealth-tax resident,” defined as someone who “is no longer a resident, and does not have the reasonable expectation to return to the state.”

The question here is not whether a resident of another state can be taxed when they have a “nexus” to California, for example income earned in California or owning property in the state. Rather, what about someone who no longer has any connection to California? The proposal to tax wealth on such people would likely be deemed to violate the U.S. Constitution’s Commerce Clause.

More fundamentally, an “exit tax” could be construed as an impairment to the right to travel. The U.S. Supreme Court affirmed in 1958 in Kent v. Dulles that citizens have a liberty interest in the right to travel: “[t]he right to travel is a part of the ‘liberty’ of which the citizen cannot be deprived without due process of law under the Fifth Amendment …”

Setting aside the practical and legal problems with this or any wealth tax proposal, a fundamental problem is the signal it sends to all productive California taxpayers as well as those in other states who might consider moving here.  California already has a horrible reputation for its treatment of taxpayers and businesses, why would we even consider another punishing tax?

The proponents of the wealth tax need to be reminded that, as much as they might want to prevent citizens from leaving, California is not East Berlin. The U.S. Constitution will not allow the state government to build a wall to keep citizens in, and then shoot tax bills at them when they try to escape.

Jon Coupal is president of the Howard Jarvis Taxpayers Association.