California, and the Worst Wealth Tax in the World

By John Gustavsson

Friday, January 02, 2026

 

In California, a proposed referendum to enact a “Billionaire Tax Act” looks likely to make the ballot in November 2026. If approved by Golden State voters, the act would introduce a one-time tax of 5 percent on all individuals with a net worth of at least $1 billion. Advocates of the tax, such as Representative Ro Khanna (D., Calif.), argue it is necessary to offset federal cuts to Medicaid, and hope to use the revenue from the tax to improve funding for education and food assistance programs. But as noble as those goals may be, the California wealth tax would be, despite the stiff competition, arguably the most destructive wealth tax ever implemented anywhere in the world.

 

First, it’s important to note that wealth taxes fell out of style long ago. In 1990, twelve European countries had a wealth tax. Today, only three remain, with the remaining countries either limiting the wealth tax to certain asset classes (e.g., real estate or foreign assets) or abolishing it altogether. Norway, one of the three countries that has retained its wealth tax, partially offsets the tax’s impact by not taxing estates. And in recent months, calls for the introduction of a wealth tax have been decisively rejected in both the U.K. and France.

 

While American progressives champion a wealth tax as a novel tool to fight wealth inequality, to the rest of the world, wealth taxes are just as outdated as VHS tapes and floppy disks.

 

The abandonment of wealth taxes did not come about as a spontaneous gift to billionaires from European policymakers. Wealth taxes are by their nature cumbersome and expensive to administer, since they require tax authorities to make individual assessments of the size of someone’s assets — including highly illiquid assets — rather than just their income. While collecting information on the latter is rather easy with the cooperation of banks and employers, the former is not. Expensive legal battles are common as those targeted dispute the size of their wealth.

 

Enforcement difficulty, however, is only a minor issue compared to the sheer capital flight spurred by this type of tax. This also goes a long way toward explaining why so many European countries abolished their wealth taxes: As the European Union gradually integrated European economies and capital markets while also introducing freedom of movement between member states, it became much easier for wealthy individuals to move their businesses and themselves to member states without a wealth tax.

 

Yet, the EU’s economic integration pales in comparison to that of the United States. Moving yourself and your business from Sweden to Spain remains far more difficult than moving from California to Texas or Florida. The ease with which businesses and individuals can move out of state means that California’s tax, should it be implemented, would cause far greater capital flight than any European equivalent. Wealth taxes only truly “work” if you can chain rich people and their businesses to your territory, such as through an exit tax.

 

Proponents have made it clear that they wish to use the wealth tax’s revenue to fund an expansion, or at least prevent cuts, to social safety net programs. This is based on the misguided idea — one held as dogma by American progressives — that European countries built their expansive welfare states by taxing the rich. In reality, the wealth tax was never a major contributor to the growth of the European welfare state: When a wealth tax was in force in Sweden, it raised less than one percent of total central government tax revenue in any given year.

 

California wealth tax supporters believe their proposed one-time tax would raise $100 billion over five years. Given that California’s total annual tax revenue is about $265 billion, this would be a significant increase in the state’s overall fiscal intake. Indeed, California’s wealth tax would bring in between 5 and 10 percent of the state’s current total annual tax revenue, a much larger revenue share than any European wealth tax ever made up. But the $100 billion is not going to happen: Capital flight would ensure that California’s tax, even if implemented, wouldn’t raise more than a fraction of that number.

 

How, then, are European welfare states funded? The short answer is by taxing low- and middle-income earners. In California, a low-income earner making $30,000 per year pays an effective tax rate of about 7 percent, including the standard deduction but excluding payroll taxes. In Sweden, that number is 18 percent, excluding payroll taxes. On top of that, Sweden charges a value-added tax of 25 percent on almost all goods, allows far fewer tax deductions, and does not allow taxpayers to file jointly. On any income over $72,000, Swedish taxpayers pay a marginal income tax rate of 50 percent. (Including the country’s 31.42 percent payroll tax, Sweden’s top marginal tax rate is roughly 67 percent.)

 

If California Democrats want to create their own knockoff Nordic welfare state, a wealth tax won’t come close to going far enough. Their only option is to pursue broad tax hikes on working and middle class people. There is no silver bullet, no “get-revenue-quick” scheme that can solve this dilemma.

 

Making matters worse, the proposed California wealth tax would be a one-time revenue-raiser. Yet, its supporters are marketing its supposed potential to cover recurring annual state expenses, including a $30 billion annual federal funding cut to California’s Medicaid. Funding for education, food assistance, and similar programs are also recurring annual expenses. Even assuming supporters are right that the tax could raise a total of $100 billion in five years, that windfall would only cover these costs for a few years.

 

In theory, California could place the new revenue in a trust, but no trust would ever yield returns high enough to cover the wealth tax’s stated aims. One-time taxes should have specific, one-off aims: Winning a war, building a dam, paying down a debt. This one does not.

 

In fact, a one-time wealth tax is worse than a recurring wealth tax. While wealth taxes are bad economics, they are at least predictable when they are recurring: Almost everyone targeted by the tax knows that they will have to pay it, and approximately how much they will have to pay. A recurring wealth tax would eventually be incorporated as a standard “cost of doing business” in a particular state or country.

 

Not so with a one-time tax. There will eventually have to be another wealth tax to keep the gravy train rolling.

 

Unlike with an annual, standardized wealth tax (such as those found in Europe), nobody knows what the next “one-time wealth tax” will entail: Will it, like the first one, only target billionaires? Or, if the revenue haul from the first try proves disappointing (which is almost a certainty), will the next tax target anyone with assets over $100 million? Or $10 million? What will the rate be — will it be like last time, with 5 percent payable over five years? Could it be as little as 2 percent? Perhaps as much as 10? And when will the next tax be levied? Will it take five years for California Democrats to return to milk the cow, or as few as two or three? Nobody will know until the next tax is enacted, and this degree of uncertainty will just add to the harm already done to the economy.

 

Finally, California’s tech- and venture capital–dominated economy makes it particularly vulnerable to a wealth tax. While certain Californians may believe the state’s billionaires amassed their wealth at the expense of everyone else, the truth is that billionaires and their investments are far more important to growth in California than anywhere in Europe. Unlike many other industries, tech relies little on brick-and-mortar stores and other assets that are difficult to move from one place to another. This is yet another reason why the capital flight that results from a California wealth tax would be even worse than what any country on the other side of the Atlantic ever experienced.

 

Overregulation and burdensome taxes meant that Europe never got its own Silicon Valley, and this lack of tech growth is one important reason why Europe fell behind the U.S. after the financial crisis. It is absurdly irresponsible for California policymakers to consider killing the state’s golden goose by going down a path even most European countries abandoned long ago.

 

The state that gave the world Silicon Valley is now openly flirting with the very policies that ensured Europe never produced one. We can only hope that Californians see through the empty promises of a wealth tax and vote to reject one in November.