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ACA-8 Wealth tax: appropriation limits.(2021-2022)



Current Version: 04/28/22 - Amended Assembly

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ACA8:v98#DOCUMENT

Amended  IN  Assembly  April 28, 2022

CALIFORNIA LEGISLATURE— 2021–2022 REGULAR SESSION

Assembly Constitutional Amendment
No. 8

Introduced by Assembly Members Lee, Carrillo, Lorena Gonzalez, and Santiago
(Principal coauthors: Assembly Members Kalra and Luz Rivas)
(Coauthor: Assembly Member Stone)

March 22, 2021

A resolution to propose to the people of the State of California an amendment to the Constitution of the State, by amending Section 2 of, and adding Section 37 to, of Article XIII thereof, and by amending Section 1 of Article XIII B thereof, relating to public finance.


LEGISLATIVE COUNSEL'S DIGEST


ACA 8, as amended, Lee. Wealth tax: appropriation limits.
The California Constitution authorizes the Legislature to impose a property tax on any type of tangible personal property, shares of capital stock, evidences of indebtedness, and any interest therein not exempt from taxation pursuant to the California Constitution. The California Constitution authorizes the Legislature, by two-thirds vote of the membership of each house, to classify such personal property for differential taxation or for exemption. The California Constitution limits taxation of certain specified personal property to no more than 0.4% of the value of such property, and limits the tax rate on personal property to no more than the tax rate on real property in the same jurisdiction.
This measure would authorize the Legislature to impose a tax upon all forms of personal property or wealth, whether tangible or intangible, and would require any tax so imposed to be administered and collected by the Franchise Tax Board and the Office of the Attorney General as provided in statute. Department of Justice, as determined by the Legislature in statute. The measure would authorize the Legislature to classify any form of personal property or wealth for differential taxation or for exemption by a majority vote.

This measure would require the Legislature to establish a task force on wealth tax administration. The measure would require the task force to determine an adequate level of annual funding and staffing for the administration of a wealth tax imposed by the Legislature. The measure would provide specific guidelines for what constitutes adequate levels of annual funding and staffing for the administration and collection of the wealth tax. The measure would establish two continuously appropriated funds in the State Treasury to cover, for the first two years of collection, the expenses of administration and collection of the wealth tax. The funds would be funded for each of those two years by the greater of either a specified amount or a certain percentage of revenues estimated to b generated by the wealth tax in the each of the first two years of collection.

The California Constitution generally prohibits the total annual appropriations subject to limitation of the state and each local government from exceeding the appropriations limit of the entity of government for the prior fiscal year, adjusted for the change in the cost of living and the change in population, and prescribes procedures for making adjustments to the appropriations limit.
This measure would remove the limitation on appropriations of the State and of local governments until such time as specified conditions are satisfied. The measure would provide that, upon satisfaction of these specified conditions, the level of appropriations made to achieve those conditions shall be set as the limitation on appropriations.
Vote: 2/3   Appropriation: NO   Fiscal Committee: YES   Local Program: NO  
WHEREAS, The State has long-term needs that are not being met using existing revenue sources, including in education, health care, and infrastructure; and
WHEREAS, The State has new needs, such as the need for pandemic recovery and climate change resilience, that are also not being met; and
WHEREAS, Wealth inequality amongst California residents has increased dramatically over the past few decades; and
WHEREAS, California’s current tax system generally asks those with the greatest ability to pay and who benefit the most from the protections and services provided by the state’s legal and economic systems to pay more, except that the very wealthiest Californians typically pay less because California’s existing income tax is realization-based and consequently fails to adequately tax the investment income or wealth accumulations of California’s wealthiest residents; and
WHEREAS, A tax on extreme wealth will restore fairness to California’s tax system and raise significant revenue to meet new and existing urgent needs; and
WHEREAS, The State’s appropriations limit was crafted during another era and needs to be updated so that it restrains the size of state and local government and also permits the state and local government to meet their basic obligations in a changing and more challenging world; now, therefore, be it
Resolved by the Assembly, the Senate concurring, That the Legislature of the State of California at its 2021–22 Regular Session commencing on the seventh day of December 2020, two-thirds of the membership of each house concurring, hereby proposes to the people of the State of California that the Constitution of the State be amended as follows:

First—

 That Section 2 of Article XIII thereof is amended to read:

SEC. 2.
 (a) Notwithstanding any other provision of this Constitution, the Legislature may provide for the taxation of all forms of personal property or wealth, whether tangible or intangible. Personal property or wealth that may be so taxed include, but are not limited to, shares of capital stock, evidences of indebtedness, and any legal or equitable interest therein. The Legislature may classify such personal property or wealth for differential taxation or for exemption.
(b) Any tax on personal property or wealth imposed under the authority of this section on or after the effective date of the measure adding this subdivision shall be administered and collected by the Franchise Tax Board and the office of the Attorney General as provided in statute. Department of Justice, as determined by the Legislature in statute.

Second—That Section 37 is added to Article XIII thereof, to read:
SEC. 37.

(a)A task force on wealth tax administration shall be established by the Legislature in accordance with this section.

(b)(1)The task force shall determine an adequate level of annual funding and staffing for the administration and collection of a wealth tax enacted under the authority of Section 2, including at both the Franchise Tax Board and the office of the Attorney General. An adequate level of annual funding and staffing should result in an audit rate of 100 percent for taxpayers with wealth of one billion dollars ($1,000,000,000) or greater and an audit rate of at least 25 percent for taxpayers with wealth of at least one hundred million dollars ($100,000,000), but less than one billion dollars ($1,000,000,000). An adequate level of annual funding and staffing should additionally enable the Franchise Tax Board to hire and pay reasonable fees to any outside experts or outside counsel as appropriate and to help fully administer and collect the Wealth Tax.

(2)There is hereby established in the State Treasury the Franchise Tax Board Wealth Tax Administration Fund.

(A)All money deposited in the Franchise Tax Board Wealth Tax Administration Fund is hereby continuously appropriated to the Franchise Tax Board, without regard to fiscal year, and shall, except as otherwise provided by the Legislature pursuant to paragraph (4), be used solely for the purpose of administering and collecting the Wealth Tax for the first two years for which that tax is collected.

(B)For each of the first two years for which the Wealth Tax is collected, fifty million dollars ($50,000,000) or 1 percent of all projected revenues from the Wealth Tax, whichever is greater, shall be deposited into the Franchise Tax Board Wealth Tax Administration Fund.

(3)There is hereby established in the State Treasury the California Department of Justice Wealth Tax Administration Fund.

(A)All money deposited in the California Department of Justice Wealth Tax Administration Fund is hereby continuously appropriated to the California Department of Justice, without regard to fiscal year, and shall, except as otherwise provided by the Legislature pursuant to paragraph (4), be used solely for the purpose of administering and collecting the Wealth Tax for the first two years for which that tax is collected.

(B)For each of the first two years for which the Wealth Tax is collected, twenty-five million dollars ($25,000,000) or one-half of 1 percent of all projected revenues from the Wealth Tax, whichever is greater, shall be deposited into the California Department of Justice Wealth Tax Administration Fund.

(4)The task force may make recommendations to the Legislature as to the prudent expenditure, for the ongoing administration and collection of the Wealth Tax, of any excess money that remains in the funds established by paragraphs (2) and (3) after the first two years for which the tax is collected. The Legislature may appropriate the remaining excess moneys for any of the recommended purposes or for any other purpose. The funds established by paragraphs (2) and (3) are terminated as of the December 1 following the end of the second year for which the Wealth Tax is levied, and any moneys remaining in either of those funds as of that date shall revert to the General Fund.

Third—Second—

 That Section 1 of Article XIII B thereof is amended to read:

SEC. 1.
 (a) The total annual appropriations subject to limitation of the State and of each local government shall not exceed the appropriations limit of the entity of government for the prior year adjusted for the change in the cost of living and the change in population, except as otherwise provided in this article.
(b) Notwithstanding subdivision (a), the appropriations limit for the State and each local government shall not be deemed exceeded for any year unless at least two out of the three following conditions have been satisfied:
(1) The Director of Finance and the Superintendent of Public Instruction mutually determine that current annual expenditures per student are sufficient to place California in the top 10 states in terms of annual expenditures per student for elementary and high schools, and that California is among the top 10 states with the lowest average class size for elementary and high schools.
(2) The Controller and the State Public Health Officer mutually determine that California is among the 10 states with the lowest fraction of their population without health insurance.
(3) The Controller and the Department of Housing and Community Development mutually determine that California is no longer among the top 10 states with the highest percentage of households whose housing costs are in excess of 50 percent of the household’s income based on information compiled from the American Community Survey made available by the United States Census Bureau, or any substantially equivalent data.
(c) If the appropriations limit and at least two of the conditions of subdivision (b) are met for any year, then the level of appropriations made in the year that was sufficient to satisfy the requirements of subdivision (b) in that year shall be the appropriations limit for both the State and local governments, adjusted according to the provisions of this article.