The Wealth Tax Steals Money and Time
Can you imagine having to do an inventory and net worth calculation every year? Let alone potentially being audited and having to prove that values were not intentionally understated? It’s not only financial robbery, it’s time theft!
– Senator John Moorlach, Moorlach Update, August 14, 2020
What Senator Moorlach is referring to is Assembly Bill 2088, which will impose a wealth tax on Californians who have a net worth in excess of $30 million. Moorlach, who remains the only Certified Public Accountant in either house of the California State Legislature, knows what he’s talking about. There are many problems with a wealth tax. How to handle unrealized gains. How to value investments in fine art, or private equity.
Valuing privately held assets is a subjective exercise. That’s one of the reasons CalPERS and other pension funds are increasing their holdings of private equity. Hiding behind the opacity of assets whose true value is anybody’s guess, they can claim their investment portfolio is worth more. It’s also one of the reasons that imposing a wealth tax is a very bad idea.
There’s two issues here, both of which ought to concern all Californians. First, the necessarily byzantine mechanics of a wealth tax. As Moorlach states, implementing this tax would require every one of California’s roughly 30,000 wealthiest residents to continuously wonder if they’ll ever have to explain to an auditor how they arrived at the values they reported for everything they own.
The proposed wealth tax would be applied to everything a California resident owns, no matter where it is on earth. And this tax on worldwide wealth would be imposed on anyone who has ever lived in California for ten years or more, even if they don’t live in California any more. Moreover, if someone currently living in California moves elsewhere, they will still have to pay the tax.
The way this provision of the law would be applied are proposed as follows: Former residents of California will pay 100 percent of the wealth tax in the first year of assessment, then 90 percent of the tax in year two, 80 percent in year three, and so on. After paying 10 percent of the wealth tax in year ten, California’s former wealthy residents would finally be off the hook.
One might think that chasing California’s exiles down in other states to impose a wealth tax is unenforceable, but this underestimates the guile of these legislators. They’re almost certainly seeing the law as a precedent for other states to follow, with the goal of allocating a tax on wealth to all participating states proportionally to how long the targeted individuals have lived in each state.
To anyone who believes that such a law is not only unenforceable but infeasible, it may be suggested that they read the latest climate scoping plans issued by California’s Air Resources Board. Focus specifically on the “Cap-and-Trade Program” and imagine how this is being applied in practice. If California’s bureaucracy can embrace something as fraught with ambiguity and fertile for corruption as carbon emissions trading, they’ll try anything.
Which brings us to the second issue of concern. As Moorlach states, this is time theft. But when has any of the lawmakers controlling the California State Legislature cared about imposing time consuming mandates on their constituents? It is common for critics of California’s regulatory state to cite the hard costs associated with compliance, whether it’s to build a new housing development or hire and manage a workforce. But what about the time?
This is a problem that affects every business in California, and one which disproportionately impacts small business owners. They are forced to hire expensive professionals to navigate a virtual avalanche of applications and reports before they can build anything or manage anything. But large corporations in many respects benefit from an extreme regulatory environment because they know it wipes out their smaller competitors.
This is why the time thieves of Sacramento are allowed to exist. Whatever they come up with is going to reward those bureaucracies, public or private, that either have no competition or that know the presence of punitive levels of regulation will stifle competition. They can raise the prices for their products and services, taking advantage of captive markets, covering the costs and spending the time, knowing it is actually working to their advantage.
The lack of financial or economic literacy in California’s state legislature, much less experience in the private sector, is not news. But when the only CPA in their midst is outnumbered 119 to 1, and the dominant party holds a “mega-majority” (75 percent of all seats) in both the Assembly and the Senate, there is no way to enforce a reality check. But their insatiable desire for money from taxpayers too often overshadows the amount of time they demand from taxpayers.
Thanks to the time thieves of Sacramento, across the state, projects that would make life better for everyone are not attempted. Adding a room to a home, launching a small business, hiring employees, attempting a new trade or profession: why bother? By the time you’ve earned the certifications, endured multiple rounds of applications with multiple agencies, paid countless fees, most of them excessive – and knowing you could be stopped cold at any time – it’s not worth it.
The wealth tax has awakened opposition from unlikely sources; even the editorial board of the Los Angeles Times has weighed in against it. Maybe, just this once, this bad idea will die in committee. But the underlying problem is a governing class more interested in imposing processes on the governed, to feed their bureaucracy, instead of nurturing productivity. If the legislature were to change its priorities, perhaps state revenues would rise without taxing more wealth and stealing more time.