Yet Governor Jerry Brown’s most recent budget proposal, released in mid-January, does not adequately address the state’s widening inequality, high unemployment and a safety net severely weakened by major budget cuts during the Great Recession. This surely means that not all Californians will share in the state’s prosperity.

Specifically, though state funding for child care and preschool programs will be increased this year, it will not come close to reaching the funding levels of 2007-2008. This means that parents of modest means will find it difficult to locate a safe place for their children while they are at work. And it will make it harder for them to obtain employment in the first place.

The CalWORKS program provides modest cash assistance for more than one million low-income children. The proposed budget for this program assumes no grant increases for 2015-2016. Even with modest increases last year, CalWORKS grants will remain below pre-recession grant levels unless the legislature intervenes and increases funding levels.

Supplemental Security Income/State Supplementary Payment (SSI/SSP) grants help 1.3 million low-income seniors and people with disabilities to purchase food, housing and other basic necessities. Grants are funded with both federal and state dollars. State lawmakers made deep cuts to SSI/SSP cash assistance in recent years and the Governor’s budget doesn’t increase the state’s portion of these grants in 2015-2016.

The Solution:

California, a state that does not impose an inheritance tax at death, should instead impose a net worth tax on its most wealthy citizens along the following lines:

• The tax would be reserved for those with very high net worths, perhaps starting at $10 million. Real property would be exempted because of the provisions of Proposition 13.

•  It would not serve as a replacement for the income tax, but as a supplemental tax limited to the very wealthy. In practice, a taxpayer would add up her assets excepting real estate (that is, cash, valuables and securities), and subtract her liabilities (debts). The first $10 million of wealth would be exempt.

The best case to be made for the implementation of a wealth tax is that households at the lower, middle and upper-middle of the economic ladder wouldn’t pay it. In fact, state sales taxes and income taxes on lower and middle income taxpayers could and should be lowered.

The rate could be progressive – ranging from one-eighth to seventh-eighths of one percent each year – or flat (perhaps half of one percent). Revenue projections would play an important role in setting the rate. The yearly return would look very much like a personal net worth statement. And such a statement would change only if there is an increase or decrease in the value of an asset from year to year or a number of assets are bought and/or sold.

Placing a value on publicly held securities would be as easy as looking in the financial section of any daily newspaper at year’s end. Valuation of other assets would be determined by independent appraisal.

In enforcing the law, the mission of the Franchise Tax Board would simply be to determine the existence and value of assets. Under a net worth tax, the penalties for substantially undervaluing an asset or attempting to hide an asset should be severe. In India, for example, if the taxpayer’s listed appraisal is grossly undervalued, the government is allowed to purchase that asset for the taxpayer’s listed assessment price plus 15 percent.

The major argument against the imposition of a wealth tax is that it will inhibit savings and result in the uber-wealthy leaving the state. However, the high front-end exemption of $10 million should allay the fears of those who believe the tax will result in lower capital investment. Furthermore, research conducted by New York University economist Edward Wolff suggests there is no strong evidence that the presence of a wealth tax in 11 Western European democracies inhibits savings.¹

What about “tax flight”? Will increasing taxes on the wealthy spur them to leave the state? A study by two Stanford researchers in the wake of the passage of the Mental Health Services Tax in California in 2004 indicates that tax rates have little effect on where millionaires choose to live. The measure, Proposition 63, placed a one-percent surcharge on those with taxable incomes above $1 million. Their conclusion: Taxes simply aren’t a key factor in the decisions of the wealthy about where to live.²  Migration is more likely to occur for a new job, cheaper housing, or a better climate. Obviously, this conclusion is limited to the personal income tax. Plainly, it doesn’t apply to businesses that opt to relocate for tax reasons.

The bulk of the revenue generated from a state net worth tax should be used to restore funding levels for the safety net programs mentioned earlier, so that all Californians can share in the state’s economic gains.

¹Edward N. Wolff, Top Heavy: The Increasing Inequality of Wealth in America and What Can Be Done About It, New Press (2002)

² Charles Varner and Cristobal Young, Millionaire Migration in California: The Impact of Top Tax Rates, Stanford Center on Poverty and Inequality (2012)

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(Roy Ulrich is a lecturer at the Goldman School of Public Policy at the University of California, Berkeley, where he teaches tax and budget policy.)