In recent years, California has seen an exodus of residents who have decided to leave cities like San Francisco and Los Angeles behind them and seek a new life in Florida and Texas. As people continue to leave the Golden State, California has experienced an extensive reduction in the amount of tax they bring in each year, leading to the implementation of several new policies, one of which aims to tax those who wish to relocate elsewhere in the nation.
Speaking on the new tax policies, financial expert John Williams claims they were implemented in response to the state’s substantial deficit of $68 billion. The new policies aim to introduce an annual wealth tax for the state’s wealthiest inhabitants. While not precisely labeled an exit tax, part of the new initiative requires citizens who wish to leave California or take their business to another state to pay a hefty exit tax. According to Williams, this move is a way in which the state can retain a portion of the tax from its wealthiest residents.
The new tax policies officially began at the start of the year, and the proposed rate was set at 1.5% for all residents with net worths exceeding $1 billion. By 2026, a 1% tax rate will apply to all residents who have over $50 million. These tax rates will apply to full-time, part-time, and even temporary residents of California. In reality, the exit tax was designed by officials to ensure that residents could still be taxed several years after they relocated to another state simply by classifying them as “Wealth Tax Residents.”
While the new wealth tax will not affect anyone worth under $50 million, those who are subject to the new policies will be required to pay their exit tax fee upon leaving the state. Since the implementation of the new policies at the beginning of the year, various Americans have questioned the legality of the wealth and exit taxes, with some claiming they are unconstitutional. Comments such as “Taxing people for leaving CA? That is unconstitutional” and “How is this even legal???” directly reflect the public opinion on the new policies, with many arguing it places restrictions on freedom of movement.
According to Williams, California’s controversial tax policies could serve as a model for numerous other states facing financial troubles. Cities such as Atlanta, Boston, Chicago, and Philadelphia may also attempt to implement their own versions of exit taxes aimed at targeting the wealthy across the nation. Nonetheless, California’s shrinking population will continue to negatively affect the state’s tax revenue, as 40% of the state’s tax income comes from wealthy people in the top 1%. While the implementation of an exit tax may help ease the blow of residents leaving the state, it won’t be sustainable in the long run, and the state may need to find a way to ensure its wealthiest residents feel comfortable living in California.
