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Sunday, October 18, 2009

California Court Upholds 1% Tax on Millionaires

The California Court of Appeals rejected a taxpayer's constitutional challenge to Proposition 63, which imposed a 1% tax on annual incomes in excess of $1 million to fund state mental health services. Jensen v. California Franchise Tax Board, No. B211815 (Ct. App. Oct. 14, 2009):

We find no constitutional infirmity in the challenged portions of Proposition 63. 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. ...

We are unaware of any case authority holding that wealthy individuals form a “suspect class” deserving of a heightened degree of scrutiny. Suspect classifications include race, gender, national origin or illegitimacy. Wealth generally confers benefits, and does not require the special protections afforded to suspect classes. Wealth has “none of the traditional indicia of suspectness: the class is not saddled with such disabilities, or subjected to such a history of purposeful unequal treatment, or relegated to such a position of political powerlessness as to command extraordinary protection from the majoritarian political process.” (San Antonio School District v. Rodriguez, 411 U.S. 1, 28 (1973).) ...

The Taxpayers are mistaken in thinking that taxpayers in a particular tax bracket cannot be singled out for an income tax to benefit society at large. ...

The tax imposed by Proposition 63 is not arbitrary merely because a person earning $1,000,001 is subject to the tax, while a person earning $999,999 is exempt. The government has leeway in “drawing lines” below which individuals are exempt from a tax. ...

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.

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Comments

Next trend Hollywood stars move to Florida.

Posted by: Fat Man | Oct 18, 2009 3:15:09 PM

The CA legislature will not be content until no productive citizens or viable businesses remain in the state. When the legislature is done doing "the people's business," Californians will be reduced to nomadic tribes, wearing loincloths, and eating beetles and berries. The very low tax and carbon footprint will make the state the envy of the world.

Posted by: PD Quig | Oct 18, 2009 3:35:31 PM

Suspect classifications include race, gender, national origin or illegitimacy. Wealth generally confers benefits, and does not require the special protections afforded to suspect classes....

The Taxpayers are mistaken in thinking that taxpayers in a particular tax bracket cannot be singled out for an income tax to benefit society at large.

So, if I'm reading this right, basically what they are saying is that we're all equal under the law and the government will protect our right to our own property... if we're poor. If not, well, cough it up. It's not like you were going to do anything good to benefit society with your money such as, oh, say, creating jobs or donating it to the charity of your choice.

Reason #... (I've lost count) why I hate California. Give me a "boring" mid-west state any day over the sinkhole that takes up most of our west coast.

Posted by: hM | Oct 18, 2009 3:46:00 PM

While I am opposed to the tax policy, I really can't argue with the court here. If you think being rich makes you part of a "suspect class" you can always end your association with said suspect class by giving away your money... to the state.

Posted by: Gullyborg | Oct 18, 2009 3:48:42 PM

If $250K isn't arbitrary, how can $1M be?
We need to establish what "rich" is so that we can make them wear black armbands with a green $.

Posted by: Porkov | Oct 18, 2009 3:55:58 PM

From InstaPundit:

CALIFORNIA COURT upholds 1% tax on millionaires. Good news for Nevada and Arizona! And Texas!

Posted by: patch | Oct 18, 2009 4:06:13 PM

Another brilliant economic move by California. Is it any wonder the State is perpetually bankrupt?

California already has the greatest EMIGRATION rate of any state of the Union, now millionaires (who already shoulder a disproportionate burden of CA's exhorbitant state taxes) are going to join them stampeding for the exits.

Posted by: looking closely | Oct 18, 2009 4:08:05 PM

> The courts “do not substitute their social and economic beliefs” to supplant the judgment of the enacting body.

Of course they do. That's why Prop 8 was on the last ballot.

Posted by: Andy Freeman | Oct 18, 2009 4:22:25 PM

The quicker these million dollar earners leave California, the more rapidly the state's economy will fall. The state is doing everything it can to regulate and tax itself out of any possibility of economic recovery.

Best of luck rebuilding your economy when all the "rich" folks have left.

Posted by: Taxed Enough | Oct 18, 2009 4:41:30 PM

"The Taxpayers are mistaken in thinking that taxpayers in a particular tax bracket cannot be singled out for an income tax to benefit society at large."

This kind of thinking can only come from a bunch of statists who think that wealth is the property of the State, and not of the people who earned it.

Tar. Feathers. Magistrate. Some assembly required.

Posted by: Kim du Toit | Oct 18, 2009 4:45:21 PM

The ruling may be correct, but the rule is self-defeating. Does one really think successful, resourceful people will surrender peacefully to such a shakedown. California's loss will be the gain of other more sensible states.

Posted by: willis | Oct 18, 2009 5:59:06 PM

It's not really a tax on millionaires, but a tax on people with income over $1MM. There is a big difference. The set of people with +$1MM in net assets ≠ the set of people with $1MM in income in a given year.

Posted by: GU | Oct 18, 2009 7:35:00 PM

Things will get very bad very quickly in California I think. They have deeply silly governance there. Bless their hearts.

Posted by: happyfeet | Oct 18, 2009 8:13:23 PM

SWEET! I guess that means the rich guys will be moving to texas. More money for us Texans!

Posted by: Doc Merlin | Oct 18, 2009 9:43:23 PM

It would appear that the appelate court hasn't heard of ' Minneapolis Star V/ Minnesota." The U.S,> Court held that a tax targeting one class of taxpayers for the benefit of all was unconstitutional (iirc. )

Posted by: anona | Oct 18, 2009 10:34:43 PM

As I drove through Los Angeles yesterday I noticed a freeway billboard advertising a real estate company that helps people relocate to Texas. The liberals are quickly ruining this state. Destroying it so they can save it, I guess.

Posted by: tyree | Oct 19, 2009 8:46:06 AM

Yeah, people in California are always dreaming about moving to Texas or Kentucky. Especially the people who make over one million dollars a year. They really hate California for what it has done to them.

Posted by: Bosco Richardson | Oct 19, 2009 2:26:29 PM

The worst part of this decision is more Californians will leave California. Unfortunately for people in other states, these people bring their "California attitude" with them.

Posted by: Sammy | Oct 21, 2009 8:50:14 AM