Supporters of a proposed wealth tax might want to look at the dire and unintended consequences of Los Angeles\u2019 mansion tax.<\/p>\n
SACRAMENTO, Calif. \u2014\u00a0National news stories have recently discussed Crazy California\u2019s effort to impose an \u201cemergency\u201d wealth\u00a0tax<\/a>\u00a0of 5 percent on the net worth of billionaires. It\u2019s an asinine idea that could signal the end of the state\u2019s leadership role in wealth-generating tech industries. The emergency is the state\u2019s ongoing\u00a0fiscal problems<\/a>, but those aren\u2019t caused by a lack of taxation, as California has among the highest tax burdens in the nation. It\u2019s the result of the state government\u2019s continuing failure to operate efficiently.<\/p>\n California has\u00a0199 billionaires<\/a>, which is far more than any other state. Proponents<\/a> of the tax \u2014 namely a labor union (Service Employees International Union-United Healthcare Workers West) with a lousy track record at the ballot box \u2014 argue that the tax would raise $20 billion a year over five years. They plan to spend the money mostly on healthcare and some other social services.<\/p>\n Only a\u00a0small number<\/a>\u00a0of billionaires have fled the state before the January deadline, but if it passes, its opponents would have a number of legitimate legal\u00a0angles<\/a>\u00a0for challenging its legitimacy \u2014 including this retroactive aspect of it. It would be a one-time tax, but it would of course send a signal to billionaires and aspiring ones that California is no place for them to do business.<\/p>\n As the nonpartisan Legislative Analyst\u2019s Office\u00a0explained<\/a>, the level of new revenue is difficult to predict because \u201cit is hard to know what actions billionaires would take to reduce the amount of tax they pay. Also, much of the wealth is based on stock prices, which are always changing.\u201d The LAO notes that billionaires\u2019 responses could significantly decrease the state\u2019s income taxes, thus mitigating a large portion of the new proceeds.<\/p>\n Economist Henry Hazlitt was known for discussing the\u00a0seen and unseen<\/a> consequences of economic decisions. For instance, we will all see the new revenues that would flow into the state from the Billionaire Tax Act, but we wouldn\u2019t see the investments and new businesses that never came about because of the tax. The\u00a0Los Angeles Times\u00a0reported<\/a>\u00a0on a California crypto startup that moved to South Dakota in December to avoid the possible tax. Other startups will take note and bypass the Golden State despite our lovely weather and beaches.<\/p>\n A couple of caveats: First, some commentators blame the state\u2019s usually misbegotten Democratic leadership, but Gov. Gavin Newsom is strongly opposed to it. \u201cIt\u2019s a badly drafted effort and it\u2019s already had an outsized impact on this state,\u201d he said recently. State leaders note that California\u2019s steeply progressive income tax system depends heavily on the highest 1 percent of owners, so even if a few of them leave, it could increase the state\u2019s efforts to balance its budget, as KCRA\u00a0notes<\/a>.<\/p>\n Second, some observers are assuming that the tax is a fait accompli given our wonky politics here, but in reality it\u2019s rather iffy that it will pass. Given the huge stakes involved, I don\u2019t blame the state\u2019s wealthiest residents for doing whatever it takes to mitigate the risk, but the measure is out for signature gathering. It hasn\u2019t qualified for the ballot yet. Initial polling shows support levels\u00a0below 50 percent<\/a>, which is typically the kiss of death at the initial ballot stage. Furthermore, California voters generally vote in a far more conservative manner on ballot measures than on their choices for elected officials. They repeatedly reject major tax hikes and rent control, for instance.<\/p>\n Still, it\u2019s problematic that powerful groups such as labor unions consistently push proposals that pose an existential threat to successful businesses and taxpayers. It\u2019s infuriating that they rarely grapple with the unintended \u2014 but easily predictable \u2014 results of such proposals. And they do sometimes pass. Another good example of these \u201ceat the rich\u201d measures is Los Angeles\u2019 Measure ULA<\/a>\u00a0from 2022. It imposes a transfer tax of 4 percent to 5.5 percent on the sale of \u201cmansions\u201d in the city.<\/p>\n Instead of providing a windfall to fund homeless programs, the tax has squelched the sale of properties that cost more than $5 million. The tax doesn\u2019t only apply to single-family mansions, but also applies to hotels, commercial buildings, shopping centers, and apartments. It\u2019s paid by sellers based on the sales price rather than the profits. Recent\u00a0news stories<\/a>\u00a0highlight the $258,000 ULA tax that Los Angeles Dodgers star Freddie Freeman paid on a house he sold for a major loss. That\u2019s because Freeman did what few others are doing: he sold it.<\/p>\n A recent commentary by Jason Ward of RAND, housing expert Shane Philips, and UCLA professor Michael Manville\u00a0explained<\/a>, \u201cThe easiest way to avoid the tax is to not sell, and\u00a0our research<\/a>\u00a0shows that over the first two years since ULA was implemented, high-value property sales in the city fell by about 50% \u2014 a far steeper decline than elsewhere in the county during the same period.\u201d Collections have averaged \u201cless than half the lowest projections.\u201d<\/p>\n The tax also \u201chas slowed the production of market-rate apartments\u201d at a time when Los Angeles desperately needs new housing, they wrote. \u201cEven though demand for housing in the region is red hot, many people who build apartments for a living have paused putting shovels in the ground [in Los Angeles] because, they say, it\u2019s just too hard to turn a profit,\u201d per an October news story<\/a>\u00a0in the\u00a0Los Angeles Times.\u00a0The tax is a key reason.<\/p>\n The above-mentioned research also found that, per an analysis by California YIMBY (Yes In My Back Yard), \u201cThe resulting drop in property tax revenue \u2014 fewer transactions means fewer properties getting reassessed under Prop. 13 \u2014 has cost schools, the city and county about $25 million yearly.\u201d So these soak the rich policies end up soaking everyone else. Fortunately, there\u2019s an effort to place on the November ballot a\u00a0measure<\/a>\u00a0to cap these transfer fees, roll back LA\u2019s mansion tax, and make it harder for voters to approve them in the future.<\/p>\n Instead of punishing success, California needs to encourage it. Yes, our state remains economically vibrant but it\u2019s despite the state\u2019s policies, not because of them. Until something changes, billionaires and those who hope to be one someday will keep looking for\u00a0greener pastures<\/a>.<\/p>\n","protected":false},"excerpt":{"rendered":"Supporters of a proposed wealth tax might want to look at the dire and unintended consequences of Los…\n","protected":false},"author":2,"featured_media":144941,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[6],"tags":[7,9,8],"class_list":{"0":"post-144940","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-california","8":"tag-california","9":"tag-california-headlines","10":"tag-california-news"},"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/us-ca\/wp-json\/wp\/v2\/posts\/144940","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/us-ca\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/us-ca\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/us-ca\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/us-ca\/wp-json\/wp\/v2\/comments?post=144940"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/us-ca\/wp-json\/wp\/v2\/posts\/144940\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/us-ca\/wp-json\/wp\/v2\/media\/144941"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/us-ca\/wp-json\/wp\/v2\/media?parent=144940"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/us-ca\/wp-json\/wp\/v2\/categories?post=144940"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/us-ca\/wp-json\/wp\/v2\/tags?post=144940"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}