California is a stronghold of the American Left. Yet even there, a wealth tax on billionaires appears to have been rejected by voters.
The tax was supported, among others, by economists Gabriel Zucman and Emmanuel Saez, who have been campaigning for higher taxes on large fortunes for years. The proposal called for a one-time tax of 5% on billionaires’ wealth. Around 200 individuals would have been affected. The decisive criterion was residency as of Jan. 1, 2026.
Supporters promised revenues of around $100 billion, supposedly to be spent on healthcare — that always sounds good. Left-wing Sen. Bernie Sanders (I-VT) supported the initiative. He has been railing against billionaires for years, even though he himself is a multimillionaire. His demand: there should be no billionaires at all.
Yet even Gov. Gavin Newsom (D-CA) opposed the one-time levy. He warned that billionaires could leave California, taking their future tax payments with them.
The campaign against the rich began years ago
The vote was merely the latest stage in a development that began much earlier. For years, the rich have been vilified in California: anyone who is particularly successful and has accumulated substantial wealth is expected to pay for it.
A wealth tax was already being discussed in California in 2020. Further proposals followed. Yet the state already has some of the highest income taxes in the United States. The top rate is 13.3%, on top of federal taxes. In Texas or Florida, by contrast, there is no state income tax at all.
The most famous entrepreneur to leave California was Tesla CEO Elon Musk. He moved to Texas in 2020. With its obsession with regulation, California had managed to drive away the greatest entrepreneur in the world. He later relocated important business operations to Texas as well, where, however, a Democrat has now won for the first time since 1988, even though Musk supported the Republican candidate with large sums of money. The state that became wealthy thanks to its entrepreneurs and technology companies is making it increasingly difficult for them to stay.
Seven billionaires with $540 billion in wealth
The new wealth tax initiative gave the exodus additional momentum. The most prominent cases included Google co-founders Larry Page and Sergey Brin, as well as investor Peter Thiel.
Economists Benjamin Jaros and Joshua Rauh examined the potential consequences of the proposed tax in a study published in October. According to their research, seven billionaires had left California or taken steps to relocate. Together, they held around $540 billion in wealth. That represents almost 30% of the billionaire wealth that was originally supposed to be taxed.
How $100 billion can turn into a loss
According to their calculations, taking into account the exodus and potential legal disputes, the tax would have generated only $28 billion to $36 billion, averaging around $30 billion — instead of the $100 billion forecast by its supporters.
But billionaires do not just pay a one-time wealth tax; they also pay income taxes every year. According to estimates by the two economists, California’s billionaires collectively pay between $3.3 billion and $5.8 billion in state income taxes annually. Under their model, the departure of billionaires could cost California between $1 billion and $3.5 billion in income tax revenue every year in the future.
The researchers therefore calculated not only the potential revenue from the wealth tax but also the long-term tax losses. Assuming the revenue losses persist indefinitely, they arrive at a negative fiscal net present value of $38.9 billion. In 85% of their simulations, the fiscal balance for the state would have been negative.
The rich can leave — everyone else stays
Leftists repeatedly claim that taxes on the rich can be raised sharply without causing them to leave. The experience of European countries, however, shows that high taxes on wealthy individuals can lead to emigration. In France, following the announcement of a 75% top tax rate, the number of emigrants with annual incomes above €300,000 rose by 46% in 2013. In Norway, after the wealth tax was increased to as much as 1.1%, a total of 515 wealthy individuals, each with assets exceeding 10 million kroner, left the country in 2022 and 2023 alone — more than twice as many as before. In Britain, following the abolition of tax privileges for wealthy foreigners, a net loss of 16,500 millionaires was forecast for 2025, compared with 10,800 the previous year.
The barriers in the U.S. are much lower because there is no language barrier as there is in Europe. Anyone living in California can move to Texas or Florida, where there is no state income tax. Of course, when a billionaire moves, that does not automatically mean that their companies and all those jobs disappear as well. But future income tax payments may benefit another state.
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California’s example demonstrates something else: it is not only a tax itself that can cause damage, but also the years of political campaigning for it. Anyone who constantly stirs up resentment against the rich and demands ever more taxes should not be surprised when they eventually leave.
The Nov. 3 vote has stopped the wealth tax for the time being. But many billionaires had already left before then. Supporters wanted to make the state $100 billion richer. In reality, years of campaigning may have contributed to California permanently losing billions in tax revenue. The rich can leave. Everyone else has to foot the bill.
Rainer Zitelmann is a historian, sociologist, and multiple bestselling author, whose books include Hitler’s National Socialism, The Power of Capitalism, and In Defense of Capitalism: Debunking the Myths. He has published 32 books, which have been translated into 35 languages. His latest book is New Space Capitalism: The Entrepreneurial Path to the Stars.
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[ H/T Washington Examiner ]
