Senator Wiener Introduces California Estate Tax Proposal to Fund Programs Reducing Wealth Inequality

SB 378 replicates the federal estate tax, but lowers the exemption to $3.5 million and directs the collected taxes to a new fund to address and alleviate the wealth gap
March 26, 2019

Sacramento –  Today, Senator Scott Wiener (D-San Francisco) announced the introduction of Senate Bill 378, which creates a California estate tax modeled on the federal estate tax, but with a lower exemption rate of $3.5 million ($7 million for a married couple). The tax phases out at the current federal estate tax exemption — $11.4 million ($22.8 million for a married couple) - thus avoiding double taxation. SB 378 contains the same exemptions as the federal estate tax (e.g., transfers to a surviving spouse and family farm exemptions) and the same tax rate (40%).

SB 378 directs all collected estate taxes to a newly created special fund: the Children’s Wealth and Opportunity Building Fund. This new fund directs estate tax proceeds toward programs and services that directly address and alleviate socio-economic inequality and build assets among people who have historically lacked them, including helping low income children build wealth through savings accounts.

SB 378, if passed by the Legislature, will appear on the November 2020 ballot. In 1982, a ballot measure passed prohibiting estate taxes, so a new ballot measure is needed to adopt one. If the ballot measure passes, we estimate California will collect between $500 million and $1 billion annually in estate taxes.

SB 378 brings the estate tax exemption back to what it was in 2009: $3.5 million. Former President Barack Obama advocated for a $3.5 million exemption in his 2008 campaign.  Hillary Clinton did the same in her 2016 campaign, and Bernie Sanders just proposed a $3.5m exemption in a new bill this year.  

An estate tax is a tax levied on assets, like cash or real estate, when an individual passes away. It is one of the most progressive forms of taxation and a key strategy to reduce wealth stratification and dynastic wealth accumulation. Over the past two decades, Republican Presidents and Congresses have scaled back the federal estate tax dramatically, increasing the estate tax exemption from $600,000 per person ($1.2 million for a married couple) twenty years ago to a whopping $11.4 million per person ($22.8 million for a married couple) today. In the 2017 tax reform bill, President Trump and the Republican Congress doubled the estate tax exemption.

As a result of these actions over the past two decades, we now have the highest estate tax exemption in United States history — at a time when income and wealth inequality are at pre-Depression levels.

SB 378 levies a California estate tax on estates ranging from $3.5 million ($7 million for a married couple) up to the current federal exemption level of $11.4 million ($22.8 million for a married couple). Amounts over the federal exemption will not be taxed under the California estate tax, in order to avoid double taxation. As noted above, this exemption is *exactly* the same exemption that existed under federal law in 2009.

“Wealth inequality is at a historic high in the United States, and it’s obscene that the federal estate tax exemption has escalated so dramatically,” said Senator Wiener. “As the federal government has slashed the estate tax for wealthy families, working class and low income families — particularly black and Latino families — have struggled and have little or no wealth to pay for college, purchase a home, or otherwise invest in their future. A California estate tax benefits low income families by helping them build wealth and end the cycle of inter-generational poverty.”

The most significant predictor of future financial success is the wealth level of a child’s parents. Throughout history, federal and state governments have helped privileged families develop wealth though various programs, including giving gifts of land, education, government-backed mortgages, farm loans, business subsidies and more. Some of these have been exclusively or disproportionally directed towards white families, leaving out communities of color, particularly black and Latino communities. This has resulted in an average white family having over 40 times more wealth than the average black family and over 20 times more wealth than an average Latino family. SB 378 seeks to address this massive wealth inequality by directing the funds collected from California’s estate tax toward programs that will help build wealth in communities that have historically lacked them. For example, the funds can be used to establish and fund savings accounts for low income children.

Quotes:

"We shouldn't let generational wealth determine who gets an honest shot at the California Dream," said Jessica Bartholow, Policy Advocate for the Western Center on Law and Poverty. "Everyone deserves to inherit the opportunity to achieve it and changing the tax code to reflect that value is crucial."

“You can only eat three meals a day,” said Dolores Huerta. “You can only wear one suit of clothes a day. What kind of conscience can people have when some have so much wealth and yet we have so many homeless people on our streets and families that have to work two jobs just to pay the rent and put food on the table? I think this is total corruption, and we have to find ways to change it. This bill offers a viable step towards reducing the corrupt levels of economic inequality we have today.”

"Our Golden State has the fifth largest economy in the world, touts itself as a bastion of progressive values, and yet has the highest poverty rate in the nation,” said Anne E Price, President of the Insight Center for Community Economic Development. “Just over a third of all Californians and close to one-half of Black and Latinx families can barely pay their bills and put food on the table. This paradox is possible because much of our economic policy is built on the long-standing false belief that anyone can make it financially through grit, resilience and hard work. The reality is that our ability to build a nest egg and be economically secure has much to do with the wealth position in which we are born, and policies of our past like the GI Bill and redlining locked out communities of color and women from building wealth. We know that without seed capital to buy a home, start a business or go to college without debt, inequality along gender and racial lines are locked in. This proposal provides a transformative pathway to economic security in California independent of the families in which we are born, and helps alleviate some of the harmful policies of our past.

“I applaud Senator Wiener for this just and moral legislation,” said Darrick Hamilton, PhD, Executive Director of the Kirwan Institute for the Study of Race and Ethnicity. “By establishing a birthright to capital, California Social Inheritance Accounts offer all Californians a shot at asset security, irrespective of their race, gender or the family financial position in which they are born.  Wealth is both the beginning and end of economic security and financial agency, and this legislation fulfills the social contract for everyone to have access to the social mobility that wealth affords.”

"Great fortunes are built by innovators and everyone whose taxes support our public schools, roads, courts, etc.," said Mark Gomez, Leap Forward Project. "SB 387 ensures the richest of the rich pay a part of their fortunes forward to our next generation of innovators.  Let’s get behind it!" 

SB 378 is co-authored by Assemblymembers Rob Bonta (D-Alameda) and Buffy Wicks (D-Oakland).

SB 378 was officially introduced on March 25, 2019, and will be set for hearing in the coming month. Click here for full text of the bill.