A ‘One-Off’ Tax?

Franco-American economist Gabriel Zucman is one of the principal architects of California’s proposed billionaire wealth tax, a morally reprehensible, economically destructive, and supposedly “one-off” 5 percent levy that, as Proposition 40, will be voted on by Californians in November.

Unsurprisingly, Zucman is unhappy about an analysis of the tax’s likely effect by Hoover Institution economists Joshua Rauh and Benjamin Jaros. Proposition 40’s proponents claim that the tax will raise $100 billion. Rauh and Jaros argue that, far from raising that sum, such a tax would end up costing the state tens of billions of dollars. To put it simply (and before considering other negative consequences), that is because the tax would drive billionaires (and the taxes they pay) out of the state. According to the Wall Street Journal, it is already doing so:

Seven billionaires with $539.9 billion in wealth moved out of California between the initiative’s filing last autumn and the date at which residency would be determined for purposes of assessing the tax (Jan. 1, 2026), according to public reports. That means nearly 30% of Prop. 40’s estimated $1.9 trillion potential tax base has already disappeared.

This has not stopped Zucman from claiming that California’s billionaires will stay put. Included in a series of tweets he has written attacking the Hoover duo’s paper was this:

Why would billionaires permanently leave California in response to a one-time tax owed if they lived there on January 1, 2026? It would only make sense for them to leave if the tax becomes annual.

That’s (a bit) like saying that people who have already been burgled have no reason to lock the door to their homes.

And it’s a bit like arguing that Lucy won’t take away the football.

“One-time” taxes have a way of turning out to be anything but. Billionaires are certainly smart enough to know that. There’s historical precedent to start with, along with the strong likelihood that an electorate that has approved one wealth tax will approve another. Billionaires must also know that the proposed tax, which has not yet been approved, is effectively retroactive (not exactly a declaration of good faith): It measures wealth as of January 1, 2026. On top of that, they must be pretty sure that, if the retroactive element sinks the tax with the courts, the wealth taxers are bound to be back for another round. If a neighborhood turns hostile, leaving it is a rational response. Rauh and Jaros are right to reflect that in their calculations.

Oh yes, Zucman has also repeatedly called for something that could operate similar to an annual wealth tax.

Writing in the Financial Times last year, a clearly enthusiastic Simon Kuper explained how it would work:

Zucman’s project is that every billionaire should pay total annual taxes equalling at least 2 per cent of their wealth. That, he explained, is the level where they would pay the same tax rate as everyone else. If someone already pays 2 per cent through income and other taxes in their own country, “you are good, there’s nothing more to pay”. If they pay less, then any country where they do business could levy additional taxes to reach 2 per cent. For instance, Brazil or France could tax Amazon’s founder Jeff Bezos, as his company operates there.

Such a tax treats two different things (assets and income) as part of the same pie and it would be annual. That’s not exactly reassuring.

Oh yes:

Surveys show broad public support for the 2 per cent tax. [Zucman] says few political parties dare oppose it as that would mean they back “the right of billionaires to pay zero tax”. And even if a minimum tax starts low, once in place, it can be raised.

But of course.

And:

[Zucman] says a global tax can work even if countries including Trump’s US shun it. Rich people can be taxed wherever they do business. Those moving to tax havens could be charged an exit tax. If long-term residents of France move, say, to lower-tax Switzerland, Zucman wants France to continue taxing them for years.

Ah yes, exit taxes. Some countries, including the U.S., do have them, although the first exit tax in (relatively) modern times was a measure introduced by Germany toward the end of World War I. It was repealed a few years later, only to return as the late-Weimar Republic Reich Flight Tax (Reichsfluchtsteuer), a tax toughened and notoriously abused by the Nazis. This is not the best of pedigrees.

Some billionaires who would be prepared to pay a “one-off” wealth tax might balk at the prospect of an exit tax. If so, they could well decide to get out while the going is good. After all, there have been attempts in the recent past to introduce an exit tax for California.

California’s centimillionaires should not relax either. Zucman has previously argued for wealth taxes for those worth (roughly) $100 million or more, some 90 percent below his current proposal.

The headline to the FT article reads: “Meet the insurgent economists promoting a global wealth tax.” But in the article it is noted that the EU “has long backed Zucman’s research.” Some insurgent. The EU deeply resents the success of the U.S. tech sector (and as the “regulatory superpower,” periodically loots it through the imposition of grotesque “fines”). It presumably hopes that Zucman’s ideas can be used to export the bloc’ economic failures across the Atlantic.

We’ll have to see whether Proposition 40 passes, but if it even comes close to doing so, it is not only California’s billionaires (or those hoping to be billionaires) who should move away from the state.