The DEATH of California: TWO NEW TAXES THAT WILL KILL THE GOLDEN STATE!
By: Danny Batsalkin
Tags: Leaving California, California Income Tax, California Wealth Tax, California, California Taxes

California already has the highest state income taxes, the highest gas tax, and pretty much every other kind of tax and regulation you can think of. And yet, I am going to share two brand new taxes that may just be the death of California! If you live here, or you plan on coming here, this is definitely something that you need to know about. You can also check out the video I made on this topic!

If you’ve been paying attention, you have undoubtedly noticed everyone bashing California, as well as all of the celebrities, wealthy individuals and companies leaving the state this year. Joe Rogan, Ben Shapiro, Elon Musk, and Oracle are just the latest California casualties.

This year, the pandemic has really made people evaluate where they live, and a lot of people have decided that California is no longer Golden for them. I’ve been talking a lot about this phenomenon on my YouTube channel, where I’ve made two videos talking about why people are leaving California (The Mass Exodus From California Continues, Part I and Part II), and a separate video breaking down the places where people are going.

But the subject of today’s article is specifically TAXES! Recently, California has proposed two new taxes that would likely cause the mass exodus out of the state to escalate even further.

First of all, it’s really nonsensical to me that a state would not care that people and businesses are leaving, and also not really do anything to attract NEW businesses. While some politicians in California have said that they want to make the state more business friendly, actions speak louder than words and the actions of those same politicians prove otherwise.

And now, on top of all of those already high taxes and regulations, California has proposed two outrageous new taxes. As a quick disclaimer, I am NOT a CPA (but I have a really good one), so this article is intended to give you some really good information that you need to know, but I do advise that you consult with a tax professional about your specific situation. OK, legal disclaimer out of the way.

I also want to tell you how these two bills will directly affect you even if you don’t think they will… you’ll see what I mean shortly.

The first tax is a proposed increase to the already astronomical 13.3% state income tax on the highest income earners in California. As with most other tax systems in the United States, in California there are tax brackets based upon income, and 13.3% is the highest bracket, so your specific tax rate could be lower — again, consult with your CPA.

Anyhow, AB 1253 would increase that highest tax bracket to a whopping 16.8% and worse yet, if passed it would do so retroactively.

Let me give you some more specifics and let’s take a look at an example. The bill raises the tax rate on income over $1 million dollars from 13.3% to 14.3%, income over $2 million would be taxed at 16.3%, and income over $5 million would be taxed at that 16.8% level. Keep in mind that these are non-deductible state income taxes (above a cap), that are on top of Federal taxes.

Now, I know what you’re thinking… “I don’t earn that much in taxable income so this doesn’t really affect me and I don’t care.” Trust me, you should care. Stick with me and you’ll see why.

Let’s look at a quick example under the new plan… let’s say you’re extremely successful and earn $10 million dollars per year. Under this proposal, you would pay an additional $275,000 just in California state income taxes, for a grand total of $1,579,762.68 or an effective state income tax rate of 15.8%. Now you see why so many people are moving to Texas, Florida and other no or low state income tax states.

Additionally, if, for example, Biden ends up being sworn in as the next president and repeals the Trump tax cuts (which means he would raise the top Federal tax bracket back to 39.6%), and he adds in a 12.4% payroll tax that’s split between the employee and employer, that would mean that if you’re a high income earner and you live in California, your combined Federal and State income tax bracket would be as high as 62.6%!

Perhaps this is what got rapper 50 Cent to recently go on social media and proclaim that he doesn’t want to be “20 Cent” under Biden.

If that new tax isn’t enough, let’s take a look at the second proposal in California. This one is a real doozy.

Several California legislators have proposed a .4% wealth tax on high net worth individuals. Just to be clear, this is not a tax on income, but a tax on total wealth, and it would be the first of its kind in the nation. What a great distinction for California.

AB 2088 would establish a .4% tax rate on all net worth above $30 million dollars. And it’s not just wealth in California, this tax would apply to total wealth anywhere in the world if you’re a California resident.

According to data, that would apply to about 30,400 people in California, which is slightly less than .1 percent of the California population.

Again, I realize that you may be thinking… “why should I care?” I promise to tie this all together for you, but in the case of the wealth tax, it would likely be a nightmare to actually figure out, and would end up costing the state a lot of money to administer. How do you figure out everyone’s net worth? Would they have to submit a P&L, a statement of real estate owned and all debt, or submit documentation about stock options in private companies, for example? I think ultimately this would be extremely challenging to implement but the fact that it has been proposed is a pretty scary thought.

Also, I can’t figure out why California would want to do this. When California last raised income taxes in 2012, a lot of wealthy people fled the state, and rightfully so. Now, with the pandemic and a ton of business closures, it would seem crazy to raise taxes again, right?

Also, California’s top 1% of income earners already pay most of the state’s personal income tax revenue… a whopping 46% in 2016. The top 5% accounted for two-thirds of personal income tax that year.

Alright, folks, so here’s where I’m going to tie this all in together for you regardless of how much money you make or how wealthy you are. If you think that these two new taxes don’t apply to you, guess again.

I’ve never quite understood the logic behind the argument “let’s raise taxes on the rich and the corporations!” I’ve heard this from tons of politicians throughout the years so there’s really nothing new to California’s, or Joe Biden’s, continual desire to raise taxes to solve problems. Even if you don’t think California’s or Biden’s tax plan will directly affect you, higher taxes will 100% affect you no matter how much money you make, and the rationale behind these increases makes no logical sense.

Here’s why… A “tax increase” is essentially the government saying “we can do better with that money than you can.” However, if someone has achieved success and wealth that is greater than the norm, then that person has in fact proven that they can do better with the capital than the government.

Politicians have shown time and time again that they’re terrible money managers, so why would we want to give them more money from the people who have actually proven that they ARE great money managers?

It makes no sense.

That additional income tax or wealth tax in California, or that $3 trillion tax increase that Biden wants to implement means that money will be taken from the private sector and invested with the government. I don’t know about you, but I would rather invest my money with Warren Buffett than say, Joe Biden or Gavin Newsom.

For the California plans specifically, people do have a choice as to where they live. As I mentioned earlier, when California raised its state taxes in 2012, a lot of wealthy people left. If you tax wealthy people even more again, and a lot of them leave for lower tax states, that’s counterproductive because, as I mentioned, these people already pay a large majority of the state’s tax revenues. If they also employ people, and they leave, those jobs go with them. We have already seen many examples of that… take Tesla for one.

On to those big, bad “corporations.” I know this video is not about corporate income tax rates, but it’s worth mentioning. If a corporation has to pay more in taxes, where do you think that money comes from? Corporations employ people. If I own a company and I have to pay more to the government, I will either have to raise prices on my goods or services (if the market will support it), or I have to change my employment strategies by employing less people or employing different people, like say outsourcing those jobs to other state or other countries.

This is why California’s nonsensical tax increases and labor bills don’t work — companies just leave or go hire employees elsewhere, ultimately costing California jobs.

A corporation’s goal is to maximize profits so as a company owner I’m going to do that either way. I’m not just going to say “oh, ok, my taxes are higher, I’ll just keep everything the same.”

Instead, here’s an idea, California… why not, for example, give corporations a huge tax cut under the condition that they hire local employees? That would inject more money into the local economy and create more jobs.

I know it sounds great — “YES! RAISE TAXES ON THE RICH!” — but in practice it’s completely counterproductive.

Ok, so what do you think about these two taxes? If you’re in California and you’re a high net worth earner, would these taxes, if passed, make you consider leaving the state? Even if you’re not someone who would be affected by this, what do you think? Let me know in the comments below!