National Review Online
Friday, September 04, 2026
As hundreds of thousands of residents flee to states with
lower taxes and friendlier business climates, one might think California would
try to compete. Instead, the state may dig itself a deeper hole this November.
On the ballot is Proposition 40, which would impose a purportedly onetime
wealth tax of 5 percent on all personal net worths in California above $1
billion. That levy would apply to roughly 200 billionaires. Revenue would be
funneled overwhelmingly into low-income health-care spending.
This initiative was sponsored by the largest labor union of California
health-care workers, SEIU-UHW, which projects that the tax could raise $100
billion over five years. The need for new revenue, the union claims, stems from
the federal reconciliation law passed last year that requires states to
shoulder more of their Medicaid expenditures. California should have taken the
opportunity to slim down its bloated entitlement bill. Thirty-eight percent of
state residents are dependent on Medicaid — compared to a national rate of 26
percent — despite California’s typical poverty rate.
Most of the problems with the billionaires’ tax are the
same as when wealth taxes are floated nationally. The net worths of wealthy individuals
are notoriously hard to pin down and can fluctuate wildly year to year. Most of
billionaires’ assets are tied up in equity stakes in valuable enterprises, not
liquid cash sitting ready to be wired. That wealth is being put to work, not
“hoarded.” Should it work as intended, the levy would function as a staggering
penalty on investment — on top of existing income taxes — thereby weakening
economic growth and hitting job creation, the very opposite of the sort of measure
a labor union should support. (Indeed, a number of
private-sector unions oppose the tax.) Adding injury to injury, the tax is quite possibly unconstitutional.
Good news for the nation is that billionaires and the
companies they fuel can move out of California. But that is why a state-level
wealth tax is especially foolish, as it drains a jurisdiction of its most
productive residents. Much of the damage is already done. Several men collectively worth up to $1
trillion have preemptively left California, taking $27 billion in lost
income-tax revenue with them. The Stanford-based Hoover Institution calculates that this exodus will result in the wealth tax
raising $40 billion, not $100 billion, and will cost the state $25
billion in net revenue.
Thus, the health-care union is not only targeting
billionaires, but threatening to yank money from other parts of the state
government. That is why other influential unions that rely on public funds,
such as the California Teachers Association and United Domestic Workers in home and child care, are rallying against SEIU’s proposition. Even progressive
Democrats are deeply split. Both the current governor, Gavin Newsom, and his
presumptive successor, Xavier Becerra, oppose the wealth tax. Nancy Pelosi
withheld an endorsement. This week, the San Francisco Democrats — not usually a
meek bunch — joined the chorus for fear of threatened revenue.
Most fundamentally, wealth taxes are immoral per se in
any republican government. The American founders believed that justice is the end of government. California
would turn that purpose on its head, making the government into an instrument
of naked injustice by confiscating the property of a particular group. That is
precisely the kind of oppressive measure the constitutional order was designed to
protect against.
Voters may still slow California’s descent into economic
suicide, if not reverse it. Should the billionaire tax pass, however, they risk
killing the Golden State’s golden goose — the limitless spirit of building that
erected Hollywood and Silicon Valley — by snuffing out the fuel of incentive.
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