A wealth tax is a tax on someone’s assets, rather than their income, including cash, bank deposits, real estate, assets in insurance and pension plans, ownership of unincorporated business, financial securities and personal trusts. Countries like France, Spain, the Netherlands, Norway, Switzerland, Italy and British Columbia in Canada all have some form of wealth tax. Recently, Democratic legislators in California have been pushing for a 0.4 percent wealth tax on taxpayers’ net worth that exceeds $30million (£22.9million).
The aim is to raise revenue needed as a result of the coronavirus crisis.
California Assembly member Rob Bonta, D-Oakland, who proposed the bill, said: “The California Wealth Tax would add critically needed revenue for California by creating a more equitable tax structure.”
He estimated that this would affect around 30,400 Californians and that around $7.5billion (£5.7billion) could be raised each year from it.
Prince Harry, who has just bought a mansion in Santa Barbara with his wife Meghan Markle after they couple stepped down as senior royals in March, may just be able to qualify to be taxed by this system.
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Prince Harry received over £7million from Princess Diana
Assembly member Rob Bonta
The Duke of Sussex is estimated to be worth between $25million (£19million) and $40million (£30million), according to 2028 estimates from Money.com.
Meanwhile, Meghan is worth around $5million (£3.8million) from her time as an actress on the TV legal drama Suits.
A large chunk of Harry’s personal wealth comes from his inheritance from Princess Diana, estimated to be around $10million (£7.6million), which he gained access to on his 30th birthday.
Plus, since the age of 21 he has been receiving $450,000 (£344,000) a year investment profit from Diana’s estate.
Prince Harry with his mother Diana as a young boy
At the moment, Harry also gets a seven-figure sum from the Duchy of Cornwall annually, but that is supposed to stop next year as he and Meghan become “financially independent”.
The couple have recently bought a $14.7million (£11.2million) Santa Barbara mansion, which will contribute to their assets, although the mortgage will be taken into account as a liability.
If a wealth tax is brought in in California, this means Diana’s money will potentially be up for grabs.
Asked specifically whether this is the case, immigration and tax adviser David Lesperance told Express.co.uk: “Sure, a wealth tax says, ‘you have these assets, we don’t care whether you inherited if from your mother, or you created some super hot app or you provide a fantastic service, you’ve got assets and we don’t care if those are gold bars, portfolio, artwork or a piece of property.’”
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Prince Harry and Meghan stepped down as senior royals at the end of March
The Golden State currently faces a $54billion (£41.2billion) budget deficit in part due to economic downturns from COVID-19.
The wealth tax bill’s co-sponsors are the California Federation of Teachers, the California Teachers Association, and the Service Employees International Union.
California already has the highest state taxes in the US, with income taxes that go up to 13.3 percent on earnings over $1million (£764,000) and would be the first in the nation to introduce a wealth tax.
This is on top of federal taxes, which taxes 37 percent of the top band, which is earnings over $510,301 (£389,704) for a single person.
A summary of the bill reads: “AB 2088 establishes a first-in-the-nation net worth tax, setting a 0.4 percent tax rate on all net worth above $30million.
“The tax takes into account all assets and liabilities held by an individual, globally, capturing the immense levels of accumulated wealth held by the top 0.1 percent of Californians.”
California is not the only place where a wealth tax is being considered at the moment.
During the Democratic primaries, US Senators Elizabeth Warren and Bernie Sanders both supported a federal wealth tax.
Harry and Meghan have bought a house in Santa Barbara
Even in the UK, Shadow Chancellor Anneliese Dodds told the Government they should consider imposing a wealth tax to aid the recovery from the coronavirus pandemic.
She said: “I think the Government does need to look at this area, I don’t think we’re in a fair situation.
“I think we do need to have that new settlement and actually much of the opinion data has indicated that has a lot of support among the UK population as well.”
She argued that tax paid by the rich was a smaller part of their income proportionally than the poor.
Shadow Chancellor of the Exchequer, Anneliese Dodds
Mr Lesperance told Express.co.uk: “Call it an NHS tax or COVID-19 tax, you can call it whatever you want, but it’s a tax on assets, it’s by definition a wealth tax.
“Have they passed it? No. But it’s in play and we are in interesting times.
“And, unlike the US, where they have elections for president every four years and every two years they elect one half of the Senate and one half of the House of Representatives, in the parliamentary system the Prime Minister is just one no-confidence vote away from yet another election.”
He added that there are several issues with wealth taxes: firstly, it is difficult to put a value on certain things such as companies that are not publicly traded.
Secondly, assets are often not liquid, as in they are not easily sold off for cash; examples of illiquid assets include real estate and collectables.
This means that in countries like France, which has a wealth tax, there have to be certain exemptions.
Another issue is that if these taxes are too high, very wealthy people may leave the area to avoid paying, meaning that they take their money with them, along with any opportunity to tax them at all, and that also means taking their spending and sometimes even their businesses.
On the other hand, there are those that argue a wealth tax ensures the richest pay their dues instead of raising income tax, which penalises people for productivity.