National Review Online
Friday, October 30, 2026
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.
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