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How Does the Proposed California Wealth Tax Work?

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How Does the Proposed California Wealth Tax Work?

How Does the Proposed California Wealth Tax Work?

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The proposed wealth tax for California was frowned upon by many. Therefore, people want to know why the government proposed it in the first place. Why do people oppose it, and how does it affect everyone countrywide? 

The Dreaded Wealth Tax

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The Democrat-led wealth tax in California was supposed to create a tax for the state’s high earners. It was also a unique method for attorneys to fish out and discover people allegedly ducking their taxes.

It places a tax imposition of 1.5% on the assets of Californians with a net worth of $1 billion. Furthermore, it places a 1% tax on those with a net worth of more than $50 million.

Why Did They Propose the Wealth Tax?

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There were three major reasons why they proposed this wealth tax. First, the state is low on funding. Therefore, they need more tax revenue. Second, many businesses have left California, making unemployment prominent. 

Lastly, housing is a huge problem in the state. The housing prices are ridiculously expensive, and people cannot afford it. Therefore, a lot of people are now homeless.

Who Does It Apply To?

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This is a major problem with the wealth tax. It applies to people whose income is in the top 10% of the state. It also applies to full-time residents, part-time residents, and even those who have just recently left the state.

Without a doubt, these conditions are not favorable to a lot of people and people didn’t hide their concerns.

Conditions for Part-time Residents

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As mentioned, this new bill does not apply to only full-time residents. It also applies to those living part-time in the state.

In this case, they will tax a certain share of their wealth based on how many days they spend in California annually. This does not favor the rich with luxury vacation homes in the state.

Conditions for Recent Departees 

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Since rumors of this bill started flying around, many people have moved away from the state. However, if they pass this legislation, it will still affect them. 

This means anyone who falls under the wealth tax category trying to leave the state will still have to pay the taxes. Therefore, leaving is not a good solution in this case.

Assets the Wealth Tax Applies To

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This wealth tax applies to every asset a rich person has. This includes artwork, offshore financial assets, shares one may hold in a partnership, and private equity interests.

This tax is so thorough that it also applies to assets that the rich do not trade publicly. Therefore, this means that the government will have full access to even private businesses that aren’t located in California.

Assets the Wealth Tax Does Not Apply To

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In a surprising twist, the wealth tax doesn’t apply to real property. Therefore, it would encourage rich people to shift most of their investments into real estate.

This may be because they are trying to favor Hollywood or other rich people who benefit democratic state officials. However, it might also be a move to improve the real estate conditions in the state.

What Do They Expect It to Do?

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The main objective of this wealth tax is to generate more funding for the state. If successful, they could raise up to $21.6 billion in revenue. However, this is still significantly less than half of the budget deficit. 

In addition, it will not make up for the over $27 billion increase in Medicaid spending over the last four years.

Housing Problem and Wealth Tax 

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One of the biggest problems that the wealth tax seeks to address is California’s housing problem. As one of the places with the highest number of billionaires in the country, it is also suffering from a huge homelessness crisis.

This is because real estate agents have increased house prices across the board, and the residents cannot afford it.

“Tax the Rich” Policy

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Many believe that Democratic strongholds like California and New York are trying to ‘Tax the Rich.’ These states have tried to put several policies in place that will increase revenue for the government by taxing the rich and making them contribute towards internal revenue. 

However, this may backfire as some of their wealthy population may move away from those areas to more accommodating ones.

Hearing on Wealth Tax

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The California legislature held a hearing on Wednesday, January 12th, regarding this proposed wealth tax. However, it didn’t go as planned, as more people were against it than for the notion. 

Republicans and Democrats rejected the bill and put it into a suspense file. This outcome was not unexpected because of the bill’s reactions before the hearing.

Rejection of Wealth Tax

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According to several reports, the House Council rejected this legislation because it was somewhat half-baked and had unsavory far-reaching implications.

In addition, the public was strongly against the proposal. Therefore, it is on hold for now, and it is unlikely that the government will bring it up again anytime soon.