As I wrote last month, I sort of hope that California voters approve a referendum approved that would impose a huge wealth tax on California’s most-successful investors, entrepreneurs and business owners.
But I’m not cheering for a bad outcome because I’m a bad person.
Instead, I think the negative impact of such a scheme would be a teachable moment. As I noted in that column:
..part of me would be happy if they voted yes. After all, it helps to have bad examples when teaching economics. Actually, California already is a bad example. Enacting a wealth tax would make it a catastrophic example.
In other words, people could learn from California’s mistakes, thus leading to a net boost for freedom and prosperity.
But it may be that the teachable moment already has occurred. To be more specific, there’s apparently been a significant exodus of successful people from California.
They see the handwriting on the wall.
They are not stupid (and their financial and tax advisors definitely are not stupid).
They understand that the tax would be retroactive to January 1.
So they have already taken steps to make sure they can avoid the tax if it gets enacted.
For those of you who want something more substantive than a clever visual, here are some excerpts from a Bloomberg report by Biz Carson and Dylan Sloan.
At least a half-dozen billionaires left California before the new year, and their exodus could soon be followed by more than a dozen others in the face of a proposed 5% tax on their wealth, according to financial advisers to the rich. David Lesperance, who specializes in relocation and expatriation, said he personally helped four billionaires leave the state ahead of the bill’s Jan. 1 residency cut-off date. Two other billionaires — Peter Thiel and David Sacks — both publicly announced new office locations on New Year’s Eve as they departed for Florida and Texas, respectively. Iconiq Capital founder Divesh Makan knows four or five families that have left already, and he expects another 15 to 20 will leave if the tax is approved, he said in an email. Alphabet Inc. co-founder Larry Page has also moved out of the state, according to a report in Business Insider. …A state analysis calculated that while a wealth tax could generate “tens of billions of dollars” in one-time revenue, it could end up costing California hundreds of millions per year in long-term revenue if billionaires choose to leave.
A story in the New York Post by Nina Joudeh is even blunter.
California lost a mind-boggling nearly $1 trillion in wealth in the past month alone thanks to fears over its proposed “Billionaire Tax,’’ according to one of the state’s wealthiest residents. …“Collectively, the amount of Billionaire wealth that has left California in the last month (!) is now in excess of $700B,” fumed venture capitalist and former Facebook exec Chamath Palihapitiya on X on Friday. …“I would not be surprised if 2026 ended with less than $1T of billionaire wealth in California and decades and hundreds of lawsuits,’’ Palihapitiya said… The mere fear of the possibility of the measure — which could go to the polls in November 2026, making its potential start date retroactive — has reportedly left a slew of California’s roughly 215 billionaires to scoop up homes in states such as Florida and Tennessee and relocate at least some of their company offices out of state, too.
Let’s now turn to a couple of other columns that raise important points.
First, Lorraine Ali wrote a piece for the L.A. Times that captures the left’s upside-down morality. Here’s some of what she wrote.
California helped make them among the richest people in the world. Now they’re fleeing because California wants a little something back. The proposed California Billionaire Tax Act has plutocrats saying they are considering deserting the Golden State for fear they’ll have to pay a one-time, 5% tax, on top of the other taxes they barely pay in comparison to the rest of us. …it’s disturbing to think that some of the richest people in the nation would rather pick up and move than put a small fraction of their vast California-made — or in the case of the burger chain, inherited — fortunes toward helping others who need a financial boost.
I can’t resist four comments on her vapid column.
First, a 5 percent wealth tax can easily translate into a 100 percent-plus tax rate on actual income from capital.
Second, this wealth tax would be devastating for entrepreneurs with paper wealth but relatively little cash flow.
Third, California didn’t make these people rich. It’s the other way around. California has been lucky that lots of highly skilled people created businesses in places like Silicon Valley.
Fourth, I suspect Ms. Ali has no clue what it will mean when California loses the other types of tax revenue generated by these taxpayers.
I assume Ms. Ali is an ideological leftist. She’s probably well-meaning, but doesn’t understand economics, wealth creation, or much else about the real world.
But let’s close today’s column by looking at the main sponsors of the referendum. I view the Service Employee’s International Union as run-of-the-mill “rent seekers.”
They want the state to have more money so that their members can continue to earn above-market salaries.
So what will happen when their cash-grab backfires and they realize the state has lost tax revenue because of out-migration?
Billionaire exodus was not the stated goal of the wealth tax proponents: it was an unintended consequence of the ballot language drafting and revision process. SEIU-UHW is a veteran of ballot measure warfare… The fiscal impact of the billionaire exodus is hard to assess. While they are already subject to California’s top 13.3% personal income tax rate, many (or most) utilize tax avoidance strategies like borrowing against appreciated stock rather than selling it. The Legislative Analyst’s Office put the potential state income tax revenue loss at hundreds of millions of dollars per year, but LAO made its estimate before the exodus began. …If California’s share of tech workers drops (faster than it already is), income tax receipts will be severely impacted. Considering that the top 1% of earners already account for close to 40% of the state’s personal income tax, the loss of hundreds of highly compensated software engineers could have a material impact on state finances. In conclusion, it seems that SEIU-UHW should have been more careful… If it does, California state government will have less money to pay their member’s salaries and cover its other priorities.
And less money for all the other interest groups feeding at the public trough.
So I can imagine when the pro-spending lobbies get together for their strategy sessions, the union bosses are probably getting lambasted by the other moochers. Just imagine what is being said:
