“What’s this I hear about California billionaires?”
It almost sounds like the beginning of an “SNL” Roseanne Roseannadanna skit.
Californians know that we live here mainly for financial and economic reasons, and the weather is a big bonus. This state was basically formed on one word, “Eureka.”
“I found it.” And the gold rush ensued. And the Golden State was accepted into the union a year later, on Sept. 9, 1850, making it the 31st state. And, as they say, the world rushed in.
I graduated from a California State University campus whose former mascot was a 49er.
It’s funny what seeking riches will do. Everyone honestly trying to eke out a living knows that economic incentives are significant drivers of behavior. And a few Californians, at least 1%, have acquired substantial fortunes during their lives.
And since they are dramatically outnumbered, let’s go after them at the ballot box.
The Tax Gold Rushes
Forget about the consequences—the public employee unions need their money. And why not? These same tax-eating collective bargaining abusers have massively increased the cost of government.
Let me give three examples, using the city of Los Angeles and the Los Angeles Unified School District, to explain what is happening to Sacramento and its subsidiary governments.
The first is defined benefit pension plans. Public employees had great ones for decades.
But when the dot-com boom hit in the late 1990s and we saw a gold rush in Silicon Valley, the union-dominated board of the California Public Employees Retirement System (CalPERS) reacted greedily. Instead of selling their high-tech stock holdings and investing the gains in high-quality bonds paying 8%, they pushed the state legislature to approve SB 400 (2019) and increased their retirement benefit formulas by 50%, retroactive to the date of hire, without paying one cent of the cost. California’s pension systems have since been hovering around a two-thirds funding level for the last quarter-century.
The public employee unions also demanded lifetime medical benefits, now known as Other Post-Employment Benefits (OPEB), that require, theoretically, the setting aside of funds for the anticipated future massive upcoming end-of-life medical costs for retirees.
The June 30, 2024, annual comprehensive financial report for the city of Los Angeles shows $4.69 billion in net unfunded pension liabilities and $1.53 billion in net OPEB liabilities. The June 30, 2024, annual comprehensive financial report for LAUSD shows a net unfunded pension liability of $6.94 billion and net OPEB liability of $9 billion. These massive debts consume significant portions of their annual budgets.
Should the economy enter a downturn and investment returns plummet, the annual contributions required for these plans will also increase. So, demand for more tax revenues will surface again.
I haven’t even mentioned the liabilities created by unused vacation pay and sick leave, which can result in some retirees receiving a $300,000-plus payment as they exit.
This brings me to the third financial demand made on both municipalities by public employee union leader Lorena Gonzalez-Fletcher, who authored Assembly Bill 218 while in the State Assembly. AB 218 extended the statute of limitations for filing sexual abuse claims. This not-so-bright move already created $4 billion in additional new debts for the county of LA and $500 million for LAUSD, and still growing, requiring the issuance of bonds to cover the settlements.
Apply all these liabilities in a somewhat similar fashion to the 483 cities, 57 other counties, the other 1,015 school and community college districts, and the state of California, and of course, they need more revenues. So why not transfer the wealth of the billionaires to the public employee unions and their members?
No. 1 in State Income Tax Rate!
If you have more than $1 million in taxable income, you’re paying the state’s highest income tax rate of 13.3%. It also happens to be the highest rate among the 50 states.
Since the amount paid is not fully deductible on one’s Federal income tax returns, the marginal tax rate jumps to nearly 23%.
When I was in the California State Senate, a former state resident told me something like this, “Why should I be giving Sacramento one out of every four dollars I earn and watch it being misspent?”
And he then moved to Florida.
The weather in California is great. But should the “weather” tax be so high that it makes those in the one percent of the population paying half of the state’s personal income tax revenues leave out of fiscal frustration?
Unreasonable taxation is an incentive that shapes behavior, even if it means moving to states with unbearable summers.
The Wealth Tax!
Since Jerry Brown returned as governor in 2011, followed by Gavin Newsom, the Democrats have controlled the governorship for the past 16 years. During that time, the state’s expenditures have almost tripled to a projected $349 billion in fiscal 2026-27 (see chart).
Now, we’re hearing SEIU (Service Employees International Union) talk about a wealth tax!
Billionaires will get to compute an inventory of the fair market value of their assets, less liabilities, and give 5% to Sacramento. Do you know how difficult it is to prepare an estate tax return? Appraisals? Inventories? Stock portfolios? Collectible valuations?
Are you kidding me? I’m a retired CPA, but this is an accountant’s job security act. And it won’t be cheap to perform these services or be held liable if they’re inaccurate. This is absolutely nuts. The intrusion on one’s privacy is insulting by itself.
Proponents claim that it’d be a one-time tax. Right. If it passes, you intuitively know that it will come back with an annual requirement.
What is more confounding to me is that so many of our billionaires not only put up with it, but they keep voting tax eaters into office. When will they stand up and say, “Hell no, we won’t go”? And then vote the public employee union-supported legislators out of office. It seems they’re more intent on fleeing to the state for Florida.
When will they underwrite a ballot measure to introduce pension reform? Why not propose that all future government employees participate in a defined contribution pension plan, as 401(k)s are used in the private sector?
Or implement a shared-risk defined-benefit plan like Wisconsin’s, which is fully funded?
Then these billionaires should put another ballot measure two years later and require that governmental retiree medical plans be integrated with Medicare. The city of Stockton eliminated its OPEB plan as part of its recovery plan upon exiting Chapter 9 bankruptcy. Something in between should be on the ballot. Please name a private-sector company that provides lifetime retiree medical benefits. The Orange County Board of Supervisors did this back in 2006; if you need a blueprint.
Two years later, they should sponsor a ballot measure that amends the state constitution, requiring a two-thirds vote before the statute of limitations on suing a governmental entity can be extended. LA County Supervisor Kathryn Barger recently asked that this be done asap. And two years later, do a ballot measure that caps the amount that can be accrued for unused sick leave and vacation time. This should exhaust the funds public employee unions have available to constantly pursue a tax-increasing agenda.
In six years, this state won’t need a wealth tax, as governmental employee benefit expenses will have been dramatically reduced by implementing retirement benefit strategies more in line with the private sector.
“What’s this I hear about California billionaires?”
These greedy money-grubbers are the target of even greedier money-grubbers. And it’s about time the billionaires go on the offensive and move the public employee unions out of this state for a change.
