Just when you thought that things couldn’t possibly get any crazier, a California lawmaker proposed a new wealth tax last month that applies to residents, including those that choose to leave in search of homes with better tax situations.

While the headline sounds pretty outrageous, the fact of the matter is that the state of California is going to be in big trouble when the time comes to start paying the tab on the debt we are currently racking up to get through the Covid-19 pandemic.

However, there are more than a few issues that come up when you start talking about taxing former residents. Let’s jump in and take a closer look at some of them.

Relocating is Still Optimal

The way that this wealth tax is structured, former residents will still owe 90% of the tax in the first year after they relocate, and then the amount due drops to 80% the following year and continues in that manner.

This is going to sound ridiculous to anyone thinking about leaving the state, but it isn’t going to stop anyone from leaving either, because paying the reducing tax is still going to be optimal compared to staying in California and paying the full amount.

It will also be beneficial for anyone that expects to live at least another ten years to get out of California and start the process of aging out of their tax liability as soon as possible.

Discourages Wealthy People From Moving to California

Another sticking point with this type of tax structure is that it is going to be a serious red flag for just about anyone with a significant net worth that is considering moving to the Golden State.

Whether a person is looking for major cities, gorgeous weather, or beautiful beaches, there are plenty of tax-friendly options, and knowing that they will be taxed well after moving on from their time in California will surely be somewhat of a deterrent.

Doesn’t Address Runaway Spending

Any good personal finance expert will tell you that the biggest problem with most budgets is the spending side. No matter how much a person, organization, or government brings in, they simply cannot sustain themselves if they refuse to control their spending.

Those same experts will tell you that you can’t fix any type of money problem with more money, and that is exactly what California is trying to do here.

Wealthy Residents Will Still Find Tax Loopholes

One of the reasons that the tax codes are so complicated in the first place is because they are designed with plenty of loopholes for wealthy residents to take advantage of. So while this new tax proposal might sound great in theory, there will likely be plenty of ways for the people it is supposed to tax to get out of paying what they theoretically owe.

When that happens, the state of California will be left with still-empty coffers, as well as a bad reputation as a very unfriendly tax state. Does that sound like someplace that you want to call home?