There are few better gauges of poor judgment than California ballot propositions. This Election Day, voters will decide whether to amplify or mitigate the damage of a proposition yet to be enacted.
Proposition 40, advertised by proponents as the “billionaire tax,” would impose a 5 percent tax on all personal net worths of California residents above $1 billion. Sponsored by the SEIU United Healthcare Workers West, the state’s largest health-care labor union, the tax is supposedly a one-time emergency measure to fill the funding gap left by federal Medicaid cuts. The union claims it will raise $100 billion from just over 200 taxpayers — essentially a free lunch.
Not so fast, say Joshua Rauh and Benjamin Jaros, a pair of economists at the Stanford-based Hoover Institution. They estimate that the wealth tax on its own will likely raise only $30 billion, or less than a third of what was promised, after accounting for billionaire departures and legal challenges. Worse still, the erosion of California’s wealthy income-tax base would end up costing the state a net $38.9 billion in present-value revenue, on average.
How does a $100 billion wealth tax turn into a money loser? It turns out that billionaires will not stand idly by while their assets are tapped. Seven already fled the state after the ballot initiative was filed last year, taking with them $536 billion in wealth, or 29 percent of the tax’s base. Several more may have left the state quietly. What do you call a reverse gold rush?
Then there are the legal problems. Rauh and Jaros see a strong possibility that courts will strike down the wealth tax, as there are plenty of grounds for a constitutional challenge. The levy is retroactive by an entire year, applying to billionaires living in California as of January 1, 2026. That means any billionaire who leaves the state this year would be subject to a tax that didn’t exist when he moved and which he had no opportunity to vote on, potentially violating due process. A punitive tax on a specific group of individuals is clearly suspect, as is a state attempting to tax property far beyond its borders.
Regardless of whether the tax stays in force, its passage would signal to wealthy Californians that now is the time to leave. State governments and those they spend on are loath to give up a new revenue source once it’s been established. That’s why California is also voting on Tuesday to make permanent another “emergency” tax hike on higher earners that was passed in 2012 and extended in 2016. Proposition 40 sets the stage for its own continuation by lifting the constitutional limit on additional wealth taxes and allowing a legislative supermajority to extend the tax and expand it to lower incomes.
The more intelligent labor unions and Democratic officials are against Proposition 40 because they rightly fear an exodus of taxable income to other states, though much of the damage is already done. One solution to billionaire flight would be a nationwide wealth tax of the kind recently endorsed by United Airlines CEO Scott Kirby. He knows the problem better than most: While United is headquartered in Chicago, Kirby chooses to live in Texas without a state income tax.
A national wealth tax would bring its own administrative difficulties and economic destruction, but at least progressives would feel a sense of catharsis. It would also conflict with the federal government’s current policy of redistributing money upward, from poorer workers and families to wealthier retirees. Perhaps we should cut Warren Buffett’s generous Social Security check before taxing his assets.
For now, anyway, California offers other greedy governments a cautionary tale. Once known as the land to strike it rich, the state is now shooing those who did out the door.