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Should California’s richest residents pay more taxes? You could soon get to vote on it

Tax reform is ‘profoundly difficult’ in California, Gavin Newsom says

Lt. Gov. Gavin Newsom told The Sacramento Bee editorial board in February that he's in favor of extending a temporary tax increase.
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Lt. Gov. Gavin Newsom told The Sacramento Bee editorial board in February that he's in favor of extending a temporary tax increase.

A new bill could send Californians to the polls to decide whether to authorize an estate tax for the Golden State’s wealthiest residents.

Senate Bill 378, sponsored by Sen. Scott Wiener, D-San Francisco, would tax the estate of individuals worth more than $3.5 million, or couples worth $7 million, at 40 percent, generating between an estimated $500 million to $1 billion in new tax revenue.

If the bill passes, it would go on the ballot in 2020, where voters would decide whether to amend the constitution to allow the tax to be collected and distributed into a newly created “Children’s Wealth and Opportunity Building Fund.”

Its sponsor argues that an estate tax is a necessary response to President Donald Trump’s 2017 tax bill, which raised the federal estate tax exemption to $11.4 million for individuals and $22.8 million for couples.

“Wealth inequality is at a historic high in the United States, and it’s obscene that the federal estate tax exemption has escalated so dramatically,” Wiener said. “As the federal government has slashed the estate tax for wealthy families, working class and low income families — particularly black and Latino families — have struggled and have little or no wealth to pay for college, purchase a home or otherwise invest in their future.”

Wiener’s bill met with backlash Tuesday.

Ron Nehring, former lieutenant governor candidate and California Republican Party chairman , took to Twitter to write that SB 378 “is really a tax on small businesses and family farms that have already been taxed.”

He added, “No taxation without respiration.”

Wiener’s bill keeps intact the federal exemptions for surviving spouses and family farms, according to a statement from the senator’s office.

The bill also comes as California lawmakers question how much taxation is too much for the state’s richest residents. When introducing his 2018-19 budget, former Gov. Jerry Brown voiced a fear that high taxes would lead the wealthy to flee California for states with lower tax burdens.

“People with higher incomes pay a lot more money, and some of them may be tempted to leave,” Brown said.

The richest 1 percent in California already pay 48 percent of the state’s total income tax receipts.

However, evidence shows that the rich aren’t fleeing the state.

“Substantially more rich people are moving into California than moving out,” Cristobal Young, a Cornell University sociology professor, said in a Los Angeles Times column.

“They want to be where the action is,” Young said. “There’s more opportunity in California. There are a lot of ways to make a lot of money in California, more than other places.”

Young co-authored a Stanford University study, “Millionaire migration in California: Administrative data for three waves of tax reform.”

In that study, Young and his colleagues wrote that “both in absolute terms, and compared to sensible control groups, we find little migration response to changes in top tax rates.”

For his part, Wiener argued in a statement announcing the bill that SB 378 simply brings the estate tax back to what it was in 2009; his office pointed out that the estate tax was championed by Barack Obama in 2008 and Hillary Clinton in 2016, and that 2020 presidential candidate Bernie Sanders has proposed lower the federal exemption to $3.5 million this year.

The fund created by the estate tax “benefits low income families by helping them build wealth and end the cycle of inter-generational poverty,” Wiener said.

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Andrew Sheeler covers California’s unique political climate for McClatchy. He has covered crime and politics from Interior Alaska to North Dakota’s oil patch to the rugged coast of southern Oregon. He attended the University of Alaska Fairbanks.
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