Gavin Newsom says he opposes the “billionaire tax” proposed by his union allies. But for the left, the wealth tax is the Holy Grail — and California’s “structural deficit” has created the perfect opportunity.
There is nothing new about the idea of taxing wealth accumulated by rich people (who have already paid income taxes on it). However, on a national level, such a tax is barred by the U.S. Constitution’s 16th Amendment, which only permits taxes on income, not wealth.
It may also be unlawful under the Fifth Amendment as a “taking,” since it is aimed at seizing property.
With little federal appetite for such taxes, the left has turned to state governments — particularly those in blue states.
Californians are smart enough to figure out that a “billionaire tax” is not a one-off tax, as advertised. They look at the proposal — which is supposed to be limited to five years — and say, “yeah, sure.”
The Democrats have a veto-proof majority in the legislature and a governor to sign whatever they want, but they could not muster the numbers to pass a billionaire tax the conventional way.
Hence the ballot initiative.
Supporters of the wealth tax, such as members of the Service Employees International Union (SEIU), include many people employed in the health care field, and they are proposing the funds be used to prevent the “collapse” of California’s health care system.
Those scare tactics serve their own interests.
Yet the initiative’s sponsors don’t seem to understand that wealth is created differently now than it was traditionally, in the 1900s.
In those days, wealth typically came from land holdings. Wealth today is built on ideas.
The top 5 billionaires in California are all from tech companies — Oracle, Meta, Google, and Nvidia. They may have created their wealth while in California, but they can easily move themselves, their companies, and their wealth to other states.
That is why, after California and New York, the two biggest states for housing billionaires are Florida and Texas. Their populations are growing, along with their numbers of billionaire residents.
The fascinating part of this drama is that the proposition aims to be on the ballot on Nov. 3, but has not yet qualified. The petitioners must have 875,000 or more qualified voters sign their petition.
Polls have shown that passage is uncertain if the tax makes the ballot. And Newsom has opposed it, as well.
But the harm has already been done. At least five billionaires have left the state — including Sergey Brin, Larry Page, and Peter Thiel.
The left has convinced itself that billionaires will not relocate, at least not completely. Harold Meyerson at The American Prospect, in “The Non-Exodus of California Billionaires,” seems to make that argument, based on the fact that relatively few billionaires have announced publicly that they are relocating.
He seems to not understand that these folks already have multiple homes in other locations, and they may have already taken steps to establish themselves as residents of other states without anybody knowing, other than their lawyers.
Here is where the massive stupidity of the tax comes in. The top 1% of taxpayers in California pay between 38% amd 40% of the income tax collected by the state. That figure increases to 50% when there is a boom in the stock market.
Conversely, the state’s revenues plummeted in 2000-02, when there was a bust in the stock market, particularly in the tech sector.
In better times, Elon Musk announced in 2021 that he paid $11 billion in taxes to the federal government. He earned stock options while he was a resident of California, and he owed between $1 billion and $2 billion to the state.
Now he earns those options as a Texas resident.
California’s legislative analyst is projecting $20 billion to $35 billion annual deficits, with no discussion of budget cuts coming from Newsom or his comrades in Sacramento.
Already, the mere possibility of the wealth tax is costing the state hundreds of millions of dollars (if not billions) in revenue.
It’s not just the billionaires who leave. Mark Zuckerberg and his $225 billion net worth may be making an escape for Florida. How many of Meta’s 20,000 employees in Menlo Park will follow him?
Other extraordinarily successful people will be relocating and taking their highly compensated employees with them. They believe that even if the “billionaire tax” fails to pass, the anti-business left will come after them again.
With some political will, this idea could have been stopped before launch, but it wasn’t.
Gallivanting Gavin is too busy attacking Trump and running for president to prevent his own supporters from offering this destructive proposition.
Bruce Bialosky, a two-time presidential appointee, is a certified public accountant specializing in taxes.
