California Wealth Tax Sets Up Interesting Showdown

California Wealth Tax

California state legislators have picked up the ball from radical federal Democrats and are getting ready to propose a wealth tax of their own. This will be an interesting experiment.

With the real prospect of a federal wealth tax of some degree on the horizon, should the Democrats gain enough power in the upcoming election to pass some kind of proposal, California legislators are considering slapping state residents with a 0.4% wealth tax per year on those with a net worth of $30 million or more.

States have been struggling with the effects of the current recession upon their fiscal situation, and states like California have taken a particularly big hit due to the economic effects of their enduring lockdown orders that have interfered with commerce so profoundly.

The State of California is also in a class by itself among U.S. states when it comes to left-leaning politics, and is also a state that prides itself on dancing to the beat of their own drum, and the drums do beat loudest in California.

Unlike in the federal political arena, California Democrats have the state a ll to themselves, and although Republicans have had a presence in state politics at various times, they are powerless to stop a wealth tax wave that is now starting to build. California now has a proposal that may indeed gain enough traction to soon become a reality, and what happens will be plenty interesting.

The current proposal that is making the rounds is a much more watered-down version of Elizabeth Warren’s, who particularly targeted billionaires and looked to punish them with a wealth tax as high as 6% per year. California’s proposal is less than one-tenth of that, which is at least far more pragmatic and may at least avoid the mass exodus of ultra-wealthy residents that the Warren proposal surely would precipitate.

This does not mean that, if passed, wealthy Californians will just all sit back and pay it, like they pay their other taxes, but these things always have some sort of effect upon an economy, and we have plenty of evidence to support this from this being tried in Europe and elsewhere in the past. Economists have studied this, and their analysis has always resulted in a thumbs-down verdict as far as the economy goes, and wealth taxes are particularly harmful compared to income or consumption taxes.

Whether or not a wealth tax would even be constitutional in the United States is a debate in itself, and while we may think that governments can tax us as much as they want, we have legal precedent that goes all the way back to 1796 that suggests that this sort of tax may not be legally enforceable.

The strongest argument against this would be to cite the provision of the Fifth Amendment that clearly states that the government shall not take private property for public use without “just compensation.” This is what prevents governments from just taking what is yours, your land, your car, your home, and any of your rightfully gained possessions without paying you, and this is exactly what a wealth tax would seek to do, in clear violation of this constitutional provision.

Wealth taxes take the principle of eminent domain, where the government may confiscate your property if the needs of the people are great enough, but are still required to compensate you for, to a much more vile form where they just take and don’t pay. We have chosen to permit eminent domain, although not without legal controversy, but its use is strictly limited, not just subject to political whim that places itself completely above legal justification.

Wealth taxes, unlike income taxes, do seek to deprive residents of personal property, and without any compensation whatsoever. This sole goal of the American Constitution is to place limitations upon the power of government, and not having your property confiscated without just compensation is essential to preserving property rights, as much as radical socialists wish that this was not so and long to strip those that they consider to have amassed more property than they believe people deserve of some of it.

This is what makes wealth tax schemes so fundamentally different than other taxes, and becoming free from unjustified taxation is what the American Revolution was all about, why America was born in the first place, and the framers of the Constitution wanted to make their first priority to prevent government from becoming not the servant of the people that it should be, but their masters, where citizens are thrown into serfdom and have to bow to the commands of their lords, where their possessions are usurped by force.

If We Lose Our Principles, We Are Only Left with Tyranny

Whatever issues people have with however wealth becomes distributed, we need to be guided by principles and not by lust, where they are entitled to help others become wealthier but are not entitled to just steal the wealth from others as they please. Robin Hood may be admired by the hardline leftists, but we cannot forget that he was a robber, and the fact that his legend has him using the proceeds of crime to better others does not preclude the need for these actions to be justified.

The Constitution was written to protect us against Robin and the other hoods that wish to unduly deprive us of our property, and while they may deprive us of our income, taking even little pieces of what we rightfully own in the name of socialism is not consistent with either the Constitution or any justifiable conception of the use of force by government. The means needs to be justified, and the end cannot supplant this justification, no matter how popular it may be.

The Constitution serves not to empower democracy, but to strictly limit it. We might vote to put everyone in a certain class to death, or any other vile command, but the majority rule cannot be allowed to devolve into tyranny, and we have the Fifth Amendment and other constitutional provisions to protect us against this.

The Fifth Amendment does not apply to states in its entirety, but certain provisions do, including this one, a protection which was made clear in 1897. Attempts to enforce a wealth tax at either the federal and state level would be subject to such a challenge, the first we’ve ever had since a quasi-wealth tax was struck down by the U.S. Supreme Court in the 18th century, the last time anyone tried to pass a law remotely resembling a wealth tax.

Few people are going to feel sorry about Mark Zuckerberg having $244 million a year seized by the State of California, and even if he never makes another dime and lives to 100, he’ll still have plenty of billions to get by with, but this is all about principles, whether the means to do this is not only politically popular but justifiable.

Thinking that these people can easily do without this money is not enough, no more than it would to break into Zuckerberg’s home and steal a bag full of valuables, because this makes you happy and you are happier stealing from him than not. This would be seen as wrong by most, although Democrats have moved so dangerously close to communism lately that it’s not hard to imagine them even encouraging these things, as they and the radical socialist mainstream media are even seen to be encouraging rioting and looting, which is as bad as this eve gets. The cry of punishing the “entitled” sounds eerily similar to the battle cry of Karl Marx, on an even broader scale, as the bar of entitlement is now set much lower.

Property rights in themselves, the backbone of a non-communist society, is taking a bashing lately, where those who own a lot of property, or even a little in some cases, are seen as entitled, today’s version of the bourgeoisie. When you try to defend your property against an angry mob threatening to violently seize your property and you are the ones that get charged, we know that things have gone way too far and makes the country look far more like some kind of left-wing dictatorship than anything that should pass for America.

On the course that we are on, we’re not that far away from having the Chinese complain that we need to fix our civil rights problem, not the other way around. As fantastic and as absurd as this may be, the things that are already going on in our country would never be permitted in China, who would have jealously protected the rights of Mark and Patricia McCloskey as well as actually looking to prosecute the villains instead of supporting them and looking to arrest the victims.

Even China does not have a wealth tax, and the country is run by genuine communists. They may not have elections, and the party may rule absolutely, but their rulers have left the path of Marx and Mao in favor of the path of America, the old America that is, not the one we are now leaving to go off into a wilderness full of hoodlums doing their worst, with the full support of the Democratic Party and their angry sympathizers.

Unjustifiability Is Not a Matter of Scale

California is at least smart to set their wealth tax proposal so low, to try to sneak this in without seeing too much of a flight of capital, the biggest risk with wealth taxes. They are telling people that if they are subject to this wealth tax and they leave the state, they will be still subject to it, without mentioning or perhaps even bothering to consider the mechanism by which they plan on enforcing this wish.

If you owe income taxes in one state and move to another, a state may apply for wage garnishment to collect the taxes, but garnishments apply to income, not wealth. You can’t garnish wealth and California’s threats of enforcing their state wealth taxes with people living in other states and no longer subject to either their taxes or their jurisdiction are just blowing hot air, odious smelling air that is.

The number two leftist state in the union, New York, is already seeing a huge flight of capital due to their state’s very high personal income tax rates. Not surprisingly, California’s personal taxes are also among the highest in the country, and you can only take this so far without seeing a lot of money flee for friendlier states. This wealth tax may only be a straw but may end up breaking some backs when you add in the weight of everything else they take, their high income tax, their high sales tax, excise taxes, and their lack of a state capital gains tax break, just like the one Joe Biden and his gang has planned for the country if given the chance to rule.

California loves to be first, and they may be the first state to not only try to enact a wealth tax, but also have the first wealth tax to be declared unconstitutional in over 200 years. This could end up being a big win for defenders of freedom and the traditional American way of life, and we could use one in these troubling times with the flag being flown upside down so much lately.

There is therefore much more at stake here than a very small percentage of Californians having a tiny piece of their property being confiscated every year. The State of California is attacking the very fabric of our country with these proposed taxes, whether they or we realize it or not.

While they may not be coming for us this time, and we may not care about billionaires being slapped around a little, we all get wounded each time the principles which our country was founded on get discarded like this. This bell tolls for all of us.



Monica uses a balanced approach to investment analysis, ensuring that we looking at the right things and not confined to a single and limiting theory which can lead us astray.

Contact Monica: [email protected]

Topics of interest: News & updates from the Office of the Comptroller of the Currency, Forex, Bullion, Taxation & more.