This article was originally published in August 2020.
There is no doubt that California is in a big fiscal hole. It relies heavily on income taxes from wealthy taxpayers making tax receipts volatile. Even before the covid crisis struck, commentators were predicting problems for the state which has some of the highest taxes in the US. Like practically every US state and city, California also suffers from a big public sector pensions problem. As a result of all this, there is a proposal in front of California’s state assembly to double down on California’s wealthy and tax their income as well as their wealth.
Harold Macmillan once likened privatisation to selling the family silver. The proposed wealth tax in California is rather like going out to steal somebody else’s silver. Like stealing silver, wealth taxes are both wrong and dangerous. Wealth is either accumulated out of past income which has been taxed on acquisition, or is a reflection of future income which will be taxed when it is received.
Individuals who have accumulated wealth through housing, land or securities do so out of income which has been earned and already taxed at that point. Taxing that wealth on an annual basis is a direct attack on property rights which has no obvious limits.