Tuesday, June 25, 2024
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California’s Wealth and “Exit” Tax Targets Rich Americans Trying to Leave the State

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California’s Wealth and “Exit” Tax Targets Rich Americans Trying to Leave the State
Source: Pinterest

California’s Wealth and “Exit” Tax Targets Rich Americans Trying to Leave the State

Source: Pinterest

California’s wealthiest residents are leaving the state and they are taking their tax dollars with them. This is thanks to the new wealth and exit taxes that the state’s government is imposing.

Why Did the State Introduce the Tax?

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The Californian government introduced the wealth tax to help the state’s significant budget deficit, which is about $68 billion. Therefore, they taxed the wealthy residents to pay higher taxes, even though their taxes were already significantly higher than those of other states.
When the bill was first introduced, it caused a lot of uproar, and affluent people were against the notion of them paying higher fees.

California’s Wealth Tax

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The California wealth tax is part of the state’s plan to increase state revenue. Finance expert John Williams also analyzed the state’s new tax policies and attributed the substantial budget deficit in California as what led to this wealth tax, thereby including the annual taxation of the rich based on their assets.
However, this aggressive approach is causing the rich residents to flee.

Those Affected By the Wealth Tax

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The tax only affects the affluent people in the state. However, some people under-report their wealth, so the plan involves deploying attorneys to investigate any potential offenders. Now, these residents are fearful and unable to sell some of their assets and took the option of fleeing the state. The state’s population has dropped significantly below 39 million which is its lowest since 2015.

The Rich Are Leaving California

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Since the announcement of the wealth tax three years ago, the rich population has been moving out, fast. An analysis revealed that thousands of high-earners departed the state after the announcement of a wealth tax.
Jelo Kotkin, a fellow at Chapman University, told the Los Angeles Times, “People who are leaving are taking their tax dollars with them.”

The Ultra-Wealthy Do Not Want Higher Taxes

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California’s new 14.4 percent tax rate is significantly higher than that of other states. They are asking the state’s top one percent, which typically pays between 40 to 50 percent of the state’s personal income tax revenue, to contribute more to the government. Therefore, the state’s ultra-wealthy are looking for states with lower tax rates that won’t cause them to spend more money.

The Rich Move to “Tax-Friendly” States

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Without a doubt, the 14.4 percent increase is a significant financial burden for top earners in the Golden State. Therefore, they are moving to states that are more “tax-friendly” and would not require them to spend so much money.
According to census data, most of these people are moving to places like Texas and Florida. This is because they have no personal income tax.

More Reasons Why the Rich Are Leaving

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Todd Litman, an estate planning attorney, told Sky News, “I’m seeing anywhere from two to five clients a month calling me and saying, ‘We’re leaving.’”
He also said, “They have $1 million to $2 million sitting in their IRA, and they’re saying: ‘When I retire and start pulling that IRA out, I’m going to be paying 13 percent state income tax, so I don’t want to do that.’ So, they’re heading out because of that reason.”

California’s Plan to Get Money From Rich Runaways

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The state’s officials are very much aware of the rate at which they are losing their wealthy population. Therefore, they are considering a wealth tax on those who leave the state. This is called an exit tax. This law will be a huge financial burden for people who are leaving the state as it will make them pay taxes to California regardless of where they go.

California’s “Exit” Tax

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The proposed “exit” tax rate is 1.5 percent for people with net worths exceeding $1 billion. According to sources, this rate will be adjusted in 2026 to one 1 percent for those with net worths over $50 million.
However, regular citizens will not suffer from this “exit” tax when they decide to leave the state.

Is the “Exit” Tax Legal?

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Both the wealth and exit taxes have been heavily scrutinized by critics. They have questioned whether or not these taxes are legal, and there is a constant debate about whether they violate the Due Process or Commerce Clause of the Constitution.
However, the Californian government is more concerned about how to fix their budget problems than the legality of the taxes.

The Consequences of These Taxes

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While the government introduced these taxes to help its economy, it might have some adverse effects. The real estate market in California is already dwindling as the properties are reducing in value. This also creates a significant financial risk for any homeowner in the state. In turn, the economy might see a lot of fluctuations or a steady decline.

California’s Economic Future

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The wealth and exit taxes are causing a lot of concern for people in California. There are also probabilities that it could affect even the middle class making it difficult for them to maintain their financial security.
Therefore, the fate of the state’s economic landscape might change permanently in the coming years. Will the taxes help them achieve their aim and raise revenue?