California millionaires' tax is legal

Don't you just love tax coincidences?

In my post Don't hate me because I'm rich that went up earlier today, I mention state taxes targeting millionaires as part of the current anti-wealth trend.

Now I discover (thanks to TaxProf Blog) that rich Californians are going to have to live with their state's 1 percent tax on annual incomes in excess of $1 million. The extra collections are designated to fund state mental health services.

The tax, known as Proposition 63, was approved by voters in 2004. Craig and Sally Jensen challenged the tax, notes Courthouse News Service, suing to recover a portion of their 2006 state income tax.   

The Jensens claimed that their equal protection rights were violated and that wealthy taxpayers were singled out while Californians with lower incomes were exempt from the tax.

The Second District Court of Appeal in Los Angeles, however, found that:

An income tax may be rationally based on a taxpayer‟s income level and ability to pay, and there is no need to show that a particular taxpayer personally benefits from a tax assessed for the public good. Taxpayers earning more than $1 million annually do not comprise a "suspect class" requiring a strict scrutiny constitutional analysis. Further, Proposition 63 is valid even if it is not a constitutional amendment.

The three-judge panel even invoked populist phraseology in their decision, noting:

The Taxpayers perceive themselves as victims of a populist movement to "soak the rich." The desire of the majority of the electorate to tax a minority of citizens based on their earnings is not a basis for overturning an income tax. The courts "do not substitute their social and economic beliefs" to supplant the judgment of the enacting body.

And more to the point, the appellate justices said the Jensens and their well-to-do Golden State peers "are mistaken in thinking that taxpayers in a particular tax bracket cannot be singled out for an income tax to benefit society at large."

There's no word yet as to whether the Jensens have enough post-millionaire-tax money to mount a further appeal.

Comments

[Texan]

"...free to move to another state to get out of its jurisdiction..."

True only to a degree. The Democrats are sending lots of federal money to Democratically screwed up states like California and Michigan (both former residences of mine). That federal money will come from everyone - even those of us who moved to income tax free states.

- A Texan

[Concerned Citizen]

Equal protection is a joke -- don't ever expect any court to uphold it.

Yes, people can move between states, but when the Federal tax reaches 60 pct. (fed income tax + self employment tax + Obamacare tax, etc) , it's time to stop working or consider moving offshore.

I hope everyone enjoys their new "prosperity".

[Jake Blues]

While I disagree with the philosophy and intent, the judges are correct in their analysis. If they overturn this populist play for more taxes from the productive, then they must in turn address all progressive tax schemes.

If only 10% of the Californians in this newly created tax bracket move to adjacent states, then the message will be sent. It is happening in NYC, the rest of New York, Maryland, and New Jersey.

Legislators must learn that one cannot beat the cow that provides their milk.

[MarkJ]

Next year, the Jensens ought to send the appellate justices a postcard from their new home in Oregon...or Nevada...or Arizona inscribed with the following message:

HAVING A WONDERFUL TIME. WE DON'T WISH YOU WERE HERE.

[Gary]

They don't need to make Atlas Shrugged into a movie. It's happening daily on the world stage for everyone with eyes to see.

[L]

The beauty of the United States is that you are free to move to another state to get out of its jurisdiction. We actually have a hybrid of government and the free market in that sense. The taxpayer is the customer, the source of all revenue.

The government of California seems determined, absolutely determined, to drive out the rest of its productive citizens and businesses. The customer is always wrong.

It is best, from the point of view of the people, to enact high taxation rates or expensive government programs at the state level and not at the national level.

In this way, the people retain their rights as customers.

[Chris Martin]

I hope they do challenge the decision. There needs to be a reckoning of the class warfare travesty in this country.