Off the heels of the American Revolution, the United States transformed, almost overnight, into a global sensation. In the first ten years of the Republic, ordinary people moved quickly into the middle and upper classes. More people achieved a higher standard of living than at any other time in world history up to that point. It not only transformed the nation but much of the world.
The American Dream was born, and people flocked to the US for two centuries to discover hope, opportunity, and happiness for themselves. American freedom shined as a light on a hill. Now, some Democratic-led states are trying to punish people who still want the benefits of the American Dream. In California and New York, if you leave their state to preserve any semblance of wealth or pursue other opportunities, state lawmakers want to punish you in the form of an “exit” tax.
Some could argue this is nothing more than a “captivity tax” to try to keep those with means from fleeing highly-taxed Democratic states.
They may very well be able to do it.
Like the federal government, states are beholden to their Constitutions. The US Constitution requires federal taxes to “be uniform throughout the United States” and notes that the federal government cannot “direct tax” citizens. That all but eliminates targeted taxes such as a wealth tax.
Still, a state constitution may not be that explicit.
It is the case in California.
The Golden State is bleeding citizens who can no longer afford to live there thanks to government policies, regulations, and crushing taxation. Still, if you leave California but continue to have financial ties to the state, tax collectors will seek their cut of income earned in the state.
America’s largest populated state currently has a $24 billion deficit despite having the highest tax burden in the country. Instead of addressing the root problem, Democrats, who overwhelmingly control the legislature and the governorship, are doubling down by proposing a Venus flytrap tax.
While the proposed legislation appears to be a “billionaire wealth tax” on the surface, it has trigger provisions that tax anyone with wealth who leaves the state. Many small, medium, and large companies have headed for less-taxed states like Texas, Tennessee, and Florida.
The current “exit tax” is 0.4% of individual net worth over $30 million in a tax year, including the value of assets outside California. It sounds like a lot of money. Think about this for a moment — a small business, which many are LLCs owned by individuals as an asset, is defined as income ranging from $1 million to $4 million per year, employing between 1 and 1,500 employees.
So, California is already soaking small business owners who bet on themselves at great personal risk. Many have decided over the last several years it’s better to pay the 0.4% and move on to greener pastures.
The newly proposed exit tax would impose an additional 1.5% tax on wealthy individuals with a global net worth of $1 billion. Here’s where they trick citizens with a bait and switch. Two years after becoming law, billionaires stay at 1.5%, and those in lower tax brackets would be hit with a 1% increase.
This creates numerous problems. Among the consequences, why would anyone, or any business, move to California if they risk facing a brevity of new taxes on a regular basis, especially if they leave?
This appears to be the proverbial “shooting oneself in the foot” case.
What states like California and New York are doing is hurting the middle and lower classes by ultimately forcing them onto more government dependency for their survival or well-being.
Yet, has anyone stopped to ask what happens when work opportunities shrivel up?
What happens to state coffers when government policies discourage people from starting businesses because the risk for the sacrifice is too high?
What about established businesses who believe their tax dollars are wasted and see little in return for their investment in the state through their taxes? Are they supposed to defy common sense and just pay the taxes?
It’s akin to asking you to pay $100 for a horrible $5 hot dog and demanding you be thankful for it.
In all likelihood, you would take your business elsewhere. No one would accept the government stepping in and telling them they must support the bad hot dog whether they like it or not. Worse yet, if business dries up, they’ll pay for the $150 bad hot dog and charge citizens through taxes who refuse to eat the overpriced and not well-served food.
The American Dream was built on self-interest. When people take risks and achieve success, that success rewards society through other investments, such as jobs and taxes that pay for infrastructure and social safety nets.
It seems the Democratic Party in some states has forgotten how America works. Either that or they want to transform it into something that has proven unsuccessful throughout the world.
It’s hard to understand where their thinking began and common sense ended.
The Conservative Era, Copyright 2023
