California Already Needs to Double the Wealth Tax

California may need to double the proposed wealth tax as billionaires flee the state.

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I've written about this a bunch to times now but for those who missed it the brief backstory is that a California union is backing a "one-time" billionaire wealth tax which would only apply to about 200 people in the state. It's not an income tax, it's a true wealth tax. The state would tally up everything these folks own, homes, cars, stock, companies, etc. and then take a full 5% of that total. If they don't have that amount in cash, they'd be forced to sell of their property to cover the tax.

The argument for this, being made mostly be the union, is that if the state doesn't do it there will be no money for Medicaid.
To Seema Kanani, a medical social worker for a major hospital system in Northern California, it is time to sound the alarm about the future of healthcare in the state.
"We need to do this now. We can't wait 5-10 years," she said. "We are at risk in the near future, actually, of having hospitals, ERs, and community clinics close down."

What they never say when making this argument is that a big reason Medicaid (called Medi-Cal in California) is broke is that last year Gov. Newsom expanded it to cover all illegal immigrants. This blew the state's budget by billions of dollars to the point the offer had to be temporarily limited. But Newsom refused to rescind it. In short, this isn't just a tax problem it's a spending problem.
Many people predicted that trying to soak billionaires with a wealth tax would result in billionaires fleeing the state, so the proponents came up with an extra gimmick. The proposal, which might go on the ballot in November if it gets enough signatures, is retroactive and applies to anyone living in the state as of Jan. 1, 2026. In other words, by the time this (maybe) passes, it's too late to leave.
What the proponents didn't count on is that a bunch of billionaires would flee the state even before January 1. In fact, 3 of the top 5 richest people in the state have already left.

Venture capitalist Chamath Palihapitiya has been pointing out why this is a problem for the tax plan on X. The more bilionaires who leave, the less money the wealth tax can take in. (Thanks to David for sending me this tweet.)
Unfortunate update as of today:
More calls from friends. The total wealth that has left California is now $1T.
We had $2T of billionaire wealth just a few weeks ago. Now, 50% of that wealth has left - taking their income tax revenue, sales tax revenue, real estate tax revenue and all their staffs (and their salaries and income taxes) with them.
In other words, by starting this ill conceived attempt at an asset tax, the California budget deficit will explode. And we still don’t know if the tax will even make the ballot.
California billionaires were reliable tax payers - 13.3% every year. They were the sheep you could shear forever. Now California will lose this revenue source FOREVER.
Unless this ballot initiative is pulled, we will not stop the billionaire exodus. With no rich people left in California, the middle class will have to foot the bill.

The math here isn't hard. Previously there were about 200 billionaires with a combined wealth (everything they own) of about $2 trillion. But in just a few weeks, billionaires have taken half that money out of the state. So even if the wealth tax passes, it's only going to bring in about half of what the authors intended. Put another way, the proponents already need to increase the amount of the tax to bring in the amount they originally planned because half the money has left the state already.
Even worse, those billionaires are part of keeping the state's annual budget afloat as it is. As more of them leave, the budget hole gets bigger and now someone else has to make up the difference. That's eventually going to fall on the upper middle class, maybe even using this same law.
San Jose's mayor Matt Mahan has already come out against this new tax. A few days ago he spelled out why.
"We will actually increasingly have to rely on middle-class and working families to fill that gap. That's who will lose here. People who will benefit are the taxpayers of Texas and Arizona and Florida, who will now have more billionaires relocating to their state and sharing in the burden of paying for their public services and infrastructure," Mahan said.
Mahan believes the concept would do more harm than good in the long-run for California.
"It's an incredible risk. We are talking about putting at risk the driver of our economy, the job creation engine of California, for a one-time tax, to subsidize a system that is ripe with waste, fraud, and abuse," he said.

It has only been a few weeks and California has already taken a huge hit. How many more leading people are going to flee the state to avoid this in the next few months? It's like we're watching a real world version of Atlas Shrugged happening in Silicon Valley. If you want to confiscate what people own, expect many of them to disappear.

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