California State Assemblyman Rob Bonta has proposed that the wealthy pay taxes whether they live in the state or not.
If passed, the California Wealth Tax, also known as AB 2088, would levy a .4% annual wealth tax that applies to former residents who already left within the past 10 years, and to current residents for 10 years after they leave, according to media reports.
“When a bill expressly has to try to anticipate people leaving because of the bill itself maybe that's a pretty good sign that it's not a good idea,” said Assemblyman Kevin Kiley who vows to vote against it.
Peter Schiff, CEO and chief global strategist of Euro Pacific Capital Inc., a broker-dealer based in Westport, Connecticut tweeted on Twitter that the rate is reduced by 10% for each year of absence and that any wealthy person who moves into ‘Calif. is nuts.’
“It's just another example of why California continues to struggle compared to other states in the country is that instead of providing real stimulus to our economy by cutting regulations, lowering taxes and letting people work by repealing AB 5,” Kiley told the Southern California Record. “You couldn't come up with a better formula for making our states’ plight even worse.”
In addition, the proposed law may not be entirely constitutional because of prohibitive ex post facto laws, according to Bilal Essayli, a constitutional attorney in Newport Beach.
“You cannot create a law and have it apply retroactively so that on its face is unconstitutional,” he said. “The bigger picture here is states like California and New York have realized that they have become financially unsustainable and high-income earners have made the decision to leave those states due to their tax policies. As a result, California, for example, California has pretty much taxed all they can within the state. Now, they’re to figure out how to get the people who've left the state who are high-income earners.”
On the upside, the 0.4% tax, if enacted, would only be applicable to people worth $30 million or more.
“That's going to be a huge disincentive for high-income earners to live in California and obviously the legislators in California don't like the fact that these people have made the decision to leave so they're trying to come up with creative, illegal and unconstitutional ways to take their wealth,” Essayli told the Southern California Record. “That's why they are proposing some of these radical ideas that we've never heard or seen before. But to me, it's a sign of desperation.”
If a lawsuit were filed to challenge AB 2088, Bilal said it would likely employ the incorporation clause of the 14th amendment, which applies the U.S. constitution to the States
“There's a due process issue,” said Essayli in an interview. “It's not fair notice. You can't retroactively penalize people for doing something that they weren't on notice for that was going to be illegal or in the tax scheme that was going to be penalized. This really gets to the heart and intent of the legislators in Sacramento. They don't want people to have free choice and they don't want these rich people to be able to make any choices and that's why they're writing the proposed law like this.”