California appropriately treats all income the same for tax purposes, whether earned by wages, salaries, interest, dividends, rent or capital gains. Meg Whitman would continue to tax all income except capital gains. Her proposal to eliminate the tax on capital gains says, in effect, that your income is taxed and mine is not.
By not taxing her income and those of other wealthy investors, of course, the state loses between $4 and $5 billion yearly. 82% of that would go to the top 1% of taxpayers, and 95% to the top 5%, according to Citizens for Tax Justice.
We estimated, using proxies for her wealth and her investments, that she would save between $8 million and $40 million by eliminating the tax on her capital income over four years. That’s a wide range but her failure to release her tax returns means that we can only estimate the savings, of which $8 million is a very low end. That report is available here.
Her response: Why would I spend $140 million running for Governor to save $15 million? Good question.
And the answer lies directly in her form 700, which details her investments. Bain Capital Management, run by Mitt Romney. Goldman Sachs. Carlyle Group. Blackstone. Hedge funds, private equity firms, venture capital, partnerships—all seeking capital gains.
So, no, it’s not just for her. It’s for the entire private equity industry, which buys and sells companies and seeks tax advantage every where it goes. Remember the hedge fund fight in Congress? The poor hedge fund managers wanted to count their income as capital gains, to be taxed at a lower rate. Eliminating tax on capital gains as ordinary income is just another tax break the private equity and hedge fund industry is seeking through their champion, Meg Whitman.
These investments have nothing to do with California—many of her partnerships are global investments. That’s what investors do, they invest globally—but to claim that this leads to jobs in California has no analytical or empirical basis whatsoever.
Does it drive millionaires and entrepreneurs from the state to pay state tax on their global gains? California has more of the Forbes 400 than no-tax Texas, Florida and Nevada combined, with smaller population. Millionaires grow in California with the economy, and take advantage of our entrepreneurial climate.
Should a discussion take place about the best ways to improve California’s economy? Absolutely. But rewarding global investment by very wealthy Californians, at a cost of billions to the budget, is not a credible part of that important discussion.