An issue that The Unger Company is monitoring for 2023 is the introduction of wealth tax proposals in eight state legislatures: California, New York, Connecticut, Maryland, Illinois, Washington, Minnesota, and Hawaii.
We aren’t in the business of politics, however from our perspective, we don’t see these measures as having a great chance of being signed into law in any of those states. That said, this isn’t the time to declare that this is a dead issue – in fact, very much the opposite.
We are taking a higher-level view. The Unger Company views this as an indication that we are in an environment where there is enough support in state houses to introduce legislation of this nature, and this is concerning for the high net worth and ultra-high net worth clients we work with.
Why do we believe that these measures won’t become law? We are using the case of California as an example as to why we don’t believe there is an appetite for a wealth tax. As they say, where there’s smoke, there’s fire (or in this case, the potential of fire).
Assemblymember Alex Lee, who represents a district in Silicon Valley, introduced the bill [CA AB 259] in January, and it received a fair amount of national attention. The measure calls for a tax of 1.5 percent on the worldwide assets of any California resident who has a net worth greater than $1 billion. This only affects ultra-high net worth individuals (UHNWI) who are legal residents of California but consider the scope. If, for instance, you are part of a family that has significant international holdings in a technology or entertainment corporation – two of the biggest industries in California – a tax on your total asset base would be applied annually. If the complicated calculation in the legislation placed this net worth at $5 billion, the state would exact a $75 million tax. This has nothing to do with your annual income, just the value of your assets. In short, to enjoy the privilege of living in California, a person or family would have to pay the state’s normal taxes plus a $75 million wealth tax. That’s a lot of cabbage!
Why don’t we think this will pass in a state where Democrats hold a super-majority in the State Assembly plus the Governor’s chair? We look to the failure of the state’s Proposition 30 from November 2022. This measure would have levied a 1.75 percent tax on Californians earning $2 million or more per year. Although many view the state as sympathetic to tax increases, voters rejected Proposition 30 by a 58-to-42 margin, and Governor Gavin Newsom came out strongly against the measure.
While this indicates to us that the public, even in a state viewed as liberal, doesn’t currently have an appetite for enacting more tax legislation, The Unger Company believes that the introduction of these bills should give anyone pause. This isn’t about retail politics or talking points, but more about whether there is enough support for more measures like this to gain traction in state houses in the future.
We are keeping an eye on state-level estate tax and other measures that would require greater estate tax planning or more estate asset protection measures. As a firm with a national footprint, we are committed to helping HNWI and UHNWI create wealth transfer plans where such liabilities are accounted for well in advance of their need.
Since 1974, The Unger CompanyLtd. has worked with the legal and financial team of very wealthy clients to implement estate tax plans that are elegant, effective, and efficient. Call us at 212-755-4777 or contact us here to learn more about how we can help you.
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