Assembly Bill 1253 (The Millionaire Tax)

BY Hwa Lang (Calvin) Cho
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I. Background
    Income inequality has always been an issue human society has been facing since the beginnings of history. Even before the concept of money, or a medium of exchange, was born, the idea of certain people being richer than others have always been around. Dismayed by this, there were numerous attempts in the 20th century to fix this, which included the popularized rise of socialism and communism. These movements hoped to get rid of such income disparities and instead replace them by stating everything is owned by the state. Ultimately though, democratic capitalism prevailed and with it, the concept of the rich and the poor continued to live on. 
    The international economic growth that occurred after WWII seemed to at first fix this issue as people lived a more stable life than ever. However, even with such unprecedented growth, the problem of income inequality could not be disclosed forever. Looking at this issue from 2020, it is clear that the problem has gotten better in some perspective - as the poor have gotten significantly better lifestyles compared to centuries ago - but the problem still exists and continues on. This issue seems to have no solution and while some attempts have done its job in reducing income gaps, they have mostly failed in solving the core of this issue. 

II. Overview of Assembly Bill 1253
    Assembly Bill 1253, otherwise known as the “millionaire tax” is a new legislation that Californian Democrats have been pushing for as a solution to this issue. This tax would add on to the already-existing taxes and raise the tax rate for millionaires to about 54%. While this would not necessarily change the fact that a small group of people make “more,” the millionaire tax would lower the amount of money millionaires take home, thus reducing the disparities caused by income inequality. 
“The Personal Income Tax Law and California Constitution imposes taxes based upon taxable income of individuals, estates, and trusts at specified rates. This bill, for taxable years beginning on or after January 1, 2020, in addition to those taxes, would impose an additional tax of at the rates of 1%, 3%, and 3.5% on that portion of a taxpayer’s taxable income over specified thresholds, as provided. This bill would include a change in state statute that would result in a taxpayer paying a higher tax within the meaning of Section 3 of Article XIII A of the California Constitution, and thus would require for passage the approval of 2/3 of the membership of each house of the Legislature. This bill would take effect immediately as a tax levy” (California Legislative Information).
In looking at the preambles of the proposal (which was on February 21st 2019 for the reference), it can be seen that that the plan would include higher taxes in accordance with ⅔ of the Legislature house. While most of the preambles in the text are rather irrelevant, what must be noted is that it would tax people at certain “thresholds, as provided.” This adds on to the implementation process of this law, by suggesting how the law will work by taxing millionaires over a longer period of time and how it’ll impose the goal amount only by raising the tax at a small rate every once in a while. Moving on though, it is additionally specified in Section 1 the followings: 
“(a) For each taxable year beginning on or after January 1, 2020, in addition to any other taxes imposed by this part or the California Constitution, an additional tax shall be imposed as follows: (1) At the rate of 1 percent on that portion of a taxpayer’s taxable income over the adjusted one-million-dollar ($1,000,000) amount, but not over the adjusted two-million-dollar ($2,000,000) amount. (2) At the rate of 3 percent on that portion of a taxpayer’s taxable income over the adjusted two-million-dollar ($2,000,000) amount, but not over the adjusted five-million-dollar ($5,000,000) amount. (3) At the rate of 3.5 percent on that portion of a taxpayer’s taxable income over the adjusted five-million-dollar ($5,000,000) amount” (California Legislative Information).
Section (a) is meant to outline the different level taxes that different levels of millionaires must pay. Taxpayers making more than 1 million but less than 2 million must pay an additional 1 percent; taxpayers making more than 2 million but less than 5 million must pay an additional 3 percent; taxpayers making over 5 million and beyond must pay an additional 3.5 percent. The purpose of this clause is to ensure that not all millionaires are likened. While all millionaires may seem rich to non-millionaires, there is a significant difference between those with an income of 10 million dollars and 1 million dollars, and they must pay different levels of taxes. 
“(b) For purposes of this part and Part 10.2 (commencing with Section 18401) of Division 2, the tax imposed under this section shall be treated as if imposed under Section 17041, including, but not limited to, the application of subdivisions (b) and (e) of Section 17041, except as follows: (1) Section 17045 shall not apply. (2) The tax imposed under this section shall apply without any adjustments to the income thresholds specified in subdivision (a) for filing status of the taxpayer” (California Legislative Information).
This primary center of focus in this section is section (2), which states that “the tax imposed under this section shall apply without any adjustments to the income thresholds specified in subdivision,” which suggests that this tax law may be adjusted as needed. Because of the way our economy has generally been growing and how inflation devalues a certain amount of money over time, this portion of the law, interpreted, means that it’ll most likely set the bars for these taxes lower if society wants to impose this tax on more people and higher if society wants to tax richer taxpayers more. Besides leaving this law flexible, (b) serves mostly as a piece that tries to fit this new legislation with previously-existing ones. 

III. Similar Laws in Other States and/or Countries
    In the United States, there are 6 states that have a special tax for millionaires. These states are California, Connecticut, Maine, New Jersey, New York, and Washington D.C. The most notable and renowned one though has been the one passed in New Jersey. In late September of 2020, the New Jersey State legislature branch passed the proposed millionaire tax, which stated that the taxpayers included in the new millionaire tax includes people making one million and up (it was set at five million prior to this passing).   
“Under the plan, the state’s revised fiscal year 2021 budget includes an increase in the gross income tax rate on individuals with earned income between $1 million and $5 million to a proposed top rate of 10.75%, up from 8.97%. (New Jersey taxpayers above the $5 million income level have already been paying 10.75% on income of more than $5 million.)” (EisnerAmper).
Although the approximately 2% increase may seem small at first, this tax applies to the wealthiest people of the country, making even a small increase or decrease significant and can result in millions of dollars added to tax revenue. However, these taxes are rather low in comparison to some of the other countries. For example, Portugal taxes high income earners an upwards tax of 61.3% while Slovenia taxes at 61.1%. While the general population seem to agree that these taxes should be in place, it is not too clear whether these acts are beneficial to society.

IV. Societal Impact
Social Inequality has also been strongly seen with the growing gap in revenue. Through the incorporation of these millionaire laws, it is believed that these gaps will be bridged closer, benefiting the poor.
“Back from an extended summer recess, a group of influential Democratic lawmakers are rushing to raise taxes on California’s wealthiest earners before an Aug. 31 deadline. They claim hiking what is already the nation’s highest state tax rate for millionaires will immediately line the state’s depleted coffers with a multibillion-dollar boost. With historic unemployment rates and strained local governments struggling to provide services, Assemblymember Miguel Santiago says the rich can afford to pick up the slack” (Courthouse News Service).
It is true that many of the rich people do have the ability to pay more in tax while living a good quality life in comparison to the poorer levels of society. This would in fact progress society forwards in that social inequality in the income sector would be generally solved. However, there is much controversy surrounding this topic due to its negative economic effects for all of society.

V. Economic Impact and Controversy
    This millionaire tax would bring “an estimated $6.8 billion a year” (Los Angeles Times) and give the state more money to reinvest in poorer communities. Despite being known as the “Golden State,” California still has to face the unemployment rate at 4% (numbers are pre-COVID-19 and as of late 2019) as well as inequalities in income that’s spread across the entire state. To some extent, these taxes are believed to help relieve emergency conditions that must be solved. However, there are several underlying economic factors that suggest these additional taxes aren’t always for the better.
“The Tax Foundation, for example, has estimated that a ten percentage point surcharge on incomes over $2 million—a change that would only affect the highest-income 0.1 percent of households—will slow growth enough to cost 118,000 jobs by the end of the decade. A still-preliminary analysis of presidential candidate Elizabeth Warren’s wealth tax—a change that would affect only the wealthiest 0.1 percent of households—was estimated by the Penn-Wharton Budget Model team to slow growth by more than 0.2 percentage points each year over the next decade.” (Economic Policy Institute).
As seen in such findings, it is evident that not all legislation that puts extra tax on the wealthy will prove to be beneficial. These rich people often end up spending more on markets, allowing for the growth of the national economy. By taking these monies out of these millionaire’s hands and putting it in the hands of the government, the basic concepts that control capitalism may be put at risk. Although the government does have the ability to put the additional tax revenue into emergency funds, economic growth, which may prove to be important in the long-run. 
“For instance, Stigliltz points to the capital gains tax (levied on profit from the sale of a stock, business, land or art) as in need of reform. The maximum percentage a person can pay in capital gains tax is currently less than the maximum individual income tax rate (and mostly has been since the 1950s), according to the Tax Policy Center. That means that wealthy people, who have the resources to invest, are being taxed at a lower rate than those who are just earning an income” (CNBC).
Viewing this from a start-up CEO’s point of view who needs investments and funding, this tax may be extremely harmful. Richer investors who used to have the money necessary to fund these startups are prevented from having the money necessary. The money that they used to have is now in the hands of the US government, who obviously cannot invest again into these startups, ultimately causing a failure on the startups. While this legislation idea makes the richer less richer, it also makes it harder for the poor to become richer, causing a paradox.
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VI. Conclusion
    Whether these millionaires are beneficial for the long-run is something that must be researched more. As it stands, it seems that the additional taxes will give good societal impacts due to its nature in lowering social inequality. However, because of its negative economic impact, not just for the ultra-rich but also the poor as well, the tax idea is something that must be dealt with carefully and cautiously. Benefits expected to bring by many supporters may not be reaped and may instead cause negative results for those root supporters.

Work Cited
Clifford, Catherine. “Top Economists Stiglitz and Piketty: The US Needs a Wealth Tax on Millionaires and Billionaires.” CNBC, CNBC, 17 Sept. 2020, www.cnbc.com/2020/09/17/economists-stiglitz-and-piketty-us-needs-a-wealth-tax.html. 
Fontinelle, Amy. “Which Countries Have High Taxes on High Incomes?” Investopedia, Investopedia, 28 Aug. 2020, www.investopedia.com/incometax/which-countries-have-highest-taxes-high-incomes-0/. 
Fontinelle, Amy. “Which Countries Have High Taxes on High Incomes?” Investopedia, Investopedia, 28 Aug. 2020, www.investopedia.com/incometax/which-countries-have-highest-taxes-high-incomes-0/. 
Legislative Information, California. “What a New Jersey ‘Millionaire Tax’ Really Means for New York.” Empire Center for Public Policy, 18 Sept. 2020, www.empirecenter.org/publications/what-a-new-jersey-millionaire-tax-really-means-for-new-york/. 
Skelton, George. “Column: California Is Too Dependent on the Rich. Now Isn't the Time for Another Millionaires' Tax.” Los Angeles Times, Los Angeles Times, 24 Aug. 2020, www.latimes.com/california/story/2020-08-24/skelton-california-millionaires-tax-coronavirus. 
Taibi, Barbara. “After Years of Talk, New Jersey's Proposed Millionaires' Tax to Become Reality.” EisnerAmper, 22 Sept. 2020, www.eisneramper.com/nj-millionaires-tax-pwa-blog-0920/. 
TurboTax – Taxes, Income Tax. “State Tax Tips for Millionaires.” TurboTax Tax Tips & Videos, 2019, turbotax.intuit.com/tax-tips/state-taxes/state-tax-tips-for-millionaires/L15HLnPCB.