A new bill was introduced in the Assembly this week that would simultaneously increase corporate taxes, raise income taxes on citizens making over $1 million a year, and eliminate corporate tax “loopholes.”
Assembly Bill 71, jointly authored by Assembly members Luz Rivas (D-Arleta) and David Chiu (D-San Francisco), aims to create a homelessness solutions fund dubbed the “Bring California Home Fund.”
To fund the program with at least $2.4 million, AB 71 would specifically increase the corporate income tax to historical high rates to create a more “progressive” corporate income tax, would increase the personal income tax for anyone in California making more than $1 million, eliminate or limit corporate tax loopholes including the water’s edge election, and would “mark to market” unrealized capital gains and repeal step-up in basis inherited assets, raising the amount generated from capital gains.
Assemblywoman Rivas and Assemblyman Chiu wrote the the bill primarily to combat homelessness. In AB 71, they point out that homelessness is a crisis in California, as over 150,000 people in the state have experienced homelessness in the past year. Increases in homelessness in 2021 are also expected due to COVID-19 and eviction protection measures expiring. The bill also notes that those who are homeless face a greater chance of contracting the virus.
The Assembly Members argue that the new program is needed to halt the growing homelessness trend and that a tax on wealthier citizens and entities in the state is the best solution.
“Hundreds of thousands of Californians are either experiencing homelessness or experiencing housing insecurity. While California has implemented short-term, piecemeal solutions to address homelessness, the ultimate solution is to invest in an ongoing, permanent source of funding to tackle this crisis,” explained Assemblyman Chiu in a statement on Thursday.
Growing discontent against AB 71
However, AB 71 has received a growing amount of scrutiny this week, with many comparing it to the failed AB 2088 earlier this year. AB 2088, authored by Assemblyman Rob Bonta (D-Oakland), would have created one of the largest wealth taxes in the world. The bill, designed to raise as much as $7.5 billion for the state, would have raised taxes for wealthy residents by as much as 16.8% and would have followed people even if they had moved out of state for up to 10 years. Despite much interest, AB 2088 fizzled out in August largely due to the backlash against it.
“It’s absolutely crazy,” Los Angeles-based financial consultant Richard Ritz told the Globe. “We’ve been seeing wealthier people leave the state for years because of high taxes, including, most recently, Elon Musk. Especially the Bay Area.”
“A lot of wealthy people had that wealth tax proposal earlier this year as the trigger to move, and now many who stayed after it was defeated are looking at this one for being a trigger. Not so much in SoCal, but clients up in the Bay Area sure are.”
“That’s the thing about wealth taxes. For as much as people celebrate them, they’re flawed from the beginning. You estimate the generated income based on current levels, but if a lot of wealthy people leave, that estimated income falls way down. So you wind up with an underfunded program, a smaller group of wealthy people to tax, and doom the state to a smaller overall budget the next year.”
“If this was a state with lower taxes and the proposed program was for something like parks, beaches, or something for all the public, maybe it would be acceptable. Maybe. But right now, it’s just seen as an unnecessary tax for a program that won’t directly do anything by many.”
More details on AB 71 are expected in the next month. AB 71 will likely go to committee in the next few weeks.