A Proposed Wealth Tax in the Hands of California Voters

A voter-initiative concerning a proposed wealth tax crossed the required signature threshold, reporting more than 1.5 million signatures. The threshold was approximately 875,000 signatures. California voters will now decide whether to adopt the wealth tax in November.

The proposal would implement a “one time” five percent (5%) tax on California residents with more than $1 billion in wealth as of January 1, 2026. It is estimated that the tax could affect 200-250 people. Advocates claim it could raise approximately $100 billion in revenue. That revenue would specifically be earmarked for healthcare and related services.

Notably, California’s leading Democrats oppose this initiative, including Governor Newsom. Their concern stems predominantly from the ease at which the affected class (billionaires) could pack up their capital and leave the state entirely, as opposed to any argument that the tax is draconian or in any way unfair. They fear that an exodus will erode the existing tax base (highest 1% of earners fund about half of California’s personal income tax revenue).

Other opponents cite to the administrative nightmare that the proposed tax would create. Specifically, most billionaires hold assets that are not liquid and/or are based on unrealized value of stock, which is volatile and fluctuates. Paying the proposed tax would likely require selling at least a portion of such assets, which could drive down company valuation and impair the U.S. economy-at-large. Additionally, the state will have to create an apparatus (i.e. inflating the existing bureaucracy) for identifying and valuing illiquid assets.

Even if the voters approve the measure, it will undoubtedly be changed in the courts. However, at that point, the damage may have already been incurred.