California seeks to follow the federal government in chasing offshore taxes, while the federal government is following California’s example against gig workers.
August 24, 2020
By: Bobby Casey, Managing Director, GWP
California has some of the best weather. It has beaches, lakes, slopes, trails, you name it!
It has big cities and agriculture.
In 2019, it was the largest economy in the United States, and one of the largest economies in the world. That’s right. California could stand alone as one of the mightiest economies. Had California been a sovereign nation, it would have ranked 5th in the world right after Germany and beating out the UK.
Venezuela enjoyed a similar status. In the 1950s, Venezuela was the 4th wealthiest country in the world and by far the wealthiest country in South America. Key word being: Was.
California is like a meme. It shoots itself in the foot, totally blind to consequences, and asks why Trump did that. But everyone who’s left California knows the names of those responsible for making that choice abundantly clear.
Leaving California is not a new thing. It’s been happening for at least 20 years… at varying degrees. It started to intensify again lately.
From 2007 through 2016, California experienced a net migratory loss of one million: about five million came in, and six million left.
About four years ago, I wrote about the mass divestment out of California. In it, I reference a study California did on itself!
A study out of California “found that regulatory compliance costs were almost five times the state’s general fund budget, about $493 billion, resulting in a loss of one job per small business or about $134,000 per small business in 2007”. California literally did a study on itself and came to this conclusion. Rarely does a government investigate itself and find itself guilty or culpable of wrong-doing. But despite its findings, they continue down the same tragic path.
Then California passed AB5 in January 2020. This is the bill that capped gig workers and companies like Uber and Lyft must hire their drivers as employees rather than as contractors.
California sued Uber and Lyft earlier this year, alleging they were skirting the law and owed millions of dollars in back wages. Last week, a San Francisco Superior Court judge handed Uber and Lyft an Aug. 20 deadline to fall in line with the labor law known as Assembly Bill 5.
Uber and Lyft responded by threatening to suspend their services if a court didn’t intervene.
California’s 1st District Court of Appeals granted a stay on the order to get into full compliance and reclassifying their employees.
They are getting an extension, but not an exemption; and this is only for Lyft and Uber. All the other gig workers are just out of luck.
[I]n February congressional Democrats subsequently introduced and passed the PRO Act, a federal version of AB 5. The PRO Act would take AB 5, along with all of its adverse consequences for workers, national. If Democrats hold the House, while capturing control of the Senate and the White House this November, there is a good chance AB 5 effectively becomes law of the land nationwide with the enactment of the PRO Act.
While that is yet to be settled, another piece of economy-killing legislation is up for discussion in California: AB2088. It’s a Wealth Tax Bill that targets everything over $30 million in assets (not income) and it goes after California residents and anyone who lived in California in the last ten years. Here are the assets they are coming for:
Stock in any publicly and privately traded C-corporation.
Stock in any S-corporation.
Interests in any partnership.
Interests in any private equity or hedge fund.
Interests in any other non-corporate businesses.
Bonds and interest bearing savings accounts.
Cash and deposits.
Interest in mutual funds or index funds.
Put and call options.
Art and collectibles.
Financial assets held offshore.
Other assets, excluding real property.
Debts other than mortgages or other liabilities secured by real property.
Mortgages and other liabilities secured by real property.
California is desperate and being very hasty. They clearly haven’t considered the implications of such a massive tax regime change in such a short period of time. They have a finite amount of days left in session (they go back into recess in a week). There are also discussions of hiking income taxes on those who make over $1 million from 13.3% to 14.3% and up to 16.8% on $5 million and over.
If they rush it through, and it’s effective immediately, how do they valuate non publicly traded assets and things not actually for sale? What happens when they sell at a loss? How do they plan to get international cooperation much less federal cooperation to track these individuals down and enforce it?
This is quite possibly the best argument for an offshore trust, and the state of California made it for me.
In the end, California is trying to follow the example of the US and chase wealth outside its jurisdiction. The federal government is trying to follow the example of California by passing the PRO Act.
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