The Atlantic tends to be pretty left-wing but this piece published today does a pretty fair job of summarizing the main problem with the California wealth tax. You could sum that problem up in two words: static analysis. The wealth tax and the people behind it think they've outsmarted California billionaires, but have they?
The unfortunate reality for progressive backers of the wealth tax is that what billionaires think about the policy, and how they react to it, will determine whether it succeeds. If voters approve the tax, they will be making a huge bet on billionaire psychology. That would be a very high-stakes wager indeed...
One serious objection to imposing a wealth tax at the state level is that it will trigger a process known as capital flight: When faced with the prospect of losing a sizable chunk of their fortune, wealthy individuals might leave the state altogether. If enough people make that choice, a wealth tax could backfire, resulting in lower long-term tax revenues. Many Silicon Valley critics of the ballot initiative have claimed that the proposal would give them virtually no choice but to leave...
The tax’s designers, however, think they’ve come up with a clever solution to capital flight: a one-off tax that is retroactive, based on a billionaire’s residency status on January 1, 2026. In other words, unless they’ve already fled the state, billionaires won’t be able to move to avoid paying the tax. “At this point, there’s no financial incentive to leave California,” Zucman said. “You’re going to pay the same amount either way.”
The problem with this is two-fold. First, several billionaires, including three of the top 5 wealthiest in the state, have already left. They beat the January 1, 2026 deadline. At a minimum, they made moves which will tie up any effort to collect from them in court for years. Second, no one believes this will be a one time tax.
“It’s not a one time; it’s a first time,” David Sacks, a venture capitalist and Trump’s AI czar, recently told CNBC. “And if they get away with it, there’ll be a second time and a third time.” That fear isn’t completely unfounded. In 2012, for instance, California voters approved a ballot initiative to raise the income-tax rate for high-earners for seven years to fill a budget shortfall. In 2016, voters overwhelmingly chose to extend the tax until 2030, and are likely to extend it even further. Voters could very well behave similarly with the wealth tax, especially given that the state’s budget problems probably won’t magically solve themselves in the next few years. “I just don’t think the idea that this will be one time is very credible,” Zachary Liscow, a tax scholar at Yale Law School who worked on a national wealth-tax proposal under the Biden administration, told me. “If this tax is really as successful at bringing in revenue as its proponents claim, I have a hard time imagining voters will just let it go away.”
So even if this passes and the state is able to collect on the first round, the billionaires will then have all the proof they need that it's time to leave to avoid the next round of the same tax. And they will leave. This is why wealth taxes in Europe have mostly been repealed.
A major example cited by critics of the California proposal is France, which implemented a much larger wealth tax on far more people, including many millionaires. The measure raised modest revenues, which fell as rich people moved out of the country to avoid paying, and the measure was repealed by the government of President Emmanuel Macron in 2017.
In a 2018 report on net wealth taxes, the Paris-based Organization for Economic Co-operation and Development found that European repeals were often driven by “efficiency and administrative concerns and by the observation that net wealth taxes have frequently failed to meet their redistributive goals.”
“The revenues collected from net wealth taxes have also, with a few exceptions, been very low,” it found...
Kent Smetters, faculty director of the Penn Wharton Budget Model, which analyzes the fiscal effects of public policies, said net worth taxes in other countries have “always raised quite a bit less revenue than what was initially projected,” in large part because “wealth is easy, as it turns out, to try to reclassify or move around” and “there’s all these tricks that you can do to try to make the wealth look smaller for tax purposes.”
As I pointed out here, making this into a recurring tax is something the designers are already contemplating. They are convinced the billionaires won't leave despite the fact that several have already left prior to the deadline. Others will simply fight the retroactive nature of the tax in court and they may very well win those fights.
As the Atlantic puts it, the authors of this tax are "wagering the future of California’s tax base on the proposition that billionaires are bluffing when they threaten to leave the state." This is a dumb bet. The wealth tax has already backfired and if this progresses get this on the November ballot, it will backfire even more.
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