California’s billionaire wealth tax pits progressives against power
Powerful public sector unions have allied with progressives to convince California voters to levy a novel tax on the wealthiest among them this November. However, the rich are fighting back — and they have the governor in their corner.
California Billionaire Tax Act
The proposed California Billionaire Tax Act would require anyone in the state with a net worth over $1 billion to pay a one-time 5% tax on their overall net worth. They could split the burden up over five years.
It’s been proposed by the Service Employees International Union-United Healthcare Workers West (SEIU-UHW).
The union is calling on Golden State billionaires to “step up and pay a one-time, emergency 5% tax” they say will fund the coming collapse of California health care as well as public education and food assistance.
Unlike a regular income tax, this would not only count the direct income of those billionaires but also their publicly traded assets, interests in business entities, interest in property and more.
Because it’s a union proposal and not from a lawmaker, the initiative needs a certain number of signatures from Californians to end up on the November ballot. Organizers told Straight Arrow News signature collection has just begun, and there is not an updated number on how many signatures have been collected so far.
If they can get enough signatures verified by county election officials, it will end up on the November ballot during the midterms where a simple majority vote would pass the measure.
California budget issues
The Trump administration’s cuts in health care spending in their July budget bill created a significant shortfall in California’s medical ledger.
“The so called Big Beautiful Bill basically combines stunning regressivity in terms of taking health care from the middle class and the working poor, and giving those tax cuts to the wealthy and their corporations when they clearly don’t even need it, causing a giant crisis in the health care system,” Darien Shanske, law professor at the University of California, Davis and co-author of an extensive report on the tax proposal.
That report found some 1.6 million Californians could completely lose their health care, especially those on Medi-Cal.
“California has a $100 billion budget hole, mostly related to health care spending, but also some food security, and especially food security for kids,” Brian Galle, law professor at the University of California Berkeley and a fellow co-author on that report, told SAN.
A coalition known as “Fight for Our Health” called on Gov. Gavin Newsom to take action to backfill those cuts.
The argument for the tax
The union behind the billionaire tax hopes the extra billions of dollars infused into the state would help fix California’s massive budget hole.
California has the most billionaires in the country, with a combined wealth of $2.2 trillion according to the report, which also said the tax would generate the $100 billion needed to plug the hole.
“There wouldn’t be much change in the behavior of billionaires from a small, essentially 1% annual tax over five years, given that their wealth grows at about 7.5% a year,” Galle said.
Billionaires often don’t pay significant taxes because they don’t have a lot of year-to-year tangible income. Most are relatively cash-poor but can borrow against their wealth tax-free.
This tax would get around that by calculating those different forms of worth.
“If you’re lucky enough to have a huge store of intangible wealth that wouldn’t be subject to the regular property tax, you can clearly afford to pay more, and you clearly are receiving all sorts of benefits from the larger society as well,” Shanske said.
Without fixing the budget shortfall, Galle said even Californians who don’t lose their health care are going to feel the impact.
“That’s ultimately going to be paid for by other patients,” he said. “That means insurance premiums are going to go up. That means it’s going to be harder for the four million California small businesses to meet payroll and hire new people and still be able to provide health insurance.”
Their report found a one-time tax on the billionaires would be an effective way to close the gap compared to other measures.
“The economic evidence that we looked at, said that was probably one of the least costly ways of getting $100 billion,” Galle said. “All taxes have some economic costs.”
At least one Golden State billionaire has come out as indifferent to the proposal. Nvidia CEO Jensen Huang, whose net worth is estimated at $160 billion, would have to pay around $8 billion. He’s the ninth richest person on Earth.
Huang said he’s “perfectly fine” with the proposal and that he hasn’t thought about it once. He plans to stay in Silicon Valley regardless of what voters decide.
Silicon Valley holds more than 50 billionaires and is also home to the largest wealth gap in the country.
“Nobody likes paying taxes, and they’ll say that there is some nexus to the real economy,” Shanske said. “But the real economy is agglomeration economics. It’s what Jensen Huang was talking about in terms of the talents and resources in California.”
Agglomeration economics is the benefits and costs of people and industrial hubs being close to each other, like in Silicon Valley.
The argument against it
Several other high-profile billionaires don’t feel the same way as Huang. Peter Thiel and Google cofounders Sergey Brin and Larry Page all seemingly pushed back against the proposal.
Thiel hasn’t publicly commented on the proposal but donated $3 million to a California lobbying group fighting against the measure. He’s also made moves to relocate some of his $26 billion empire out of the state.
That’s similar to the move made by Brin and Page.
Ahead of Christmas last year, an entity connected to Brin terminated or moved more than a dozen LLCs out of the state, according to The New York Times. Page reportedly made a similar move with 45 LLCs.
Thiel and Page both reportedly went a step further and moved out of California. Doing so before Jan. 1 would make them exempt from the tax if it’s enacted in November.
While they can certainly afford the tax bill, it’s still a tax bill.
“Nobody likes to pay taxes,” Shanske said.
Galle shared similar sentiments.
“If you’re a billionaire, to say this is going to have dramatic negative effects, because even though, yes, you can afford a 1% annual tax, you’d rather avoid it,” he said.
While none of those three have made public comments on the proposal, they have the governor on their side, and he is talking.
Newsom broke with more progressive Democrats and is actively working to kill the proposal. He’s expressed concern over the billionaires pulling business out of the state.
“This is my fear,” Newsom told Politico. “It’s just what I warned against. It’s happening.”
Newsom argues the tax would hurt California’s tentpole industries and lose some top tax dollars if billionaires exit. While they don’t pay state income tax, they do pay substantial capital gains and property taxes.
Attempts to reach the governor’s office were unsuccessful.
Data is scarce on how much billionaires actually pay in property taxes each year and their annual tax burden is reportedly just 1.3% of their total wealth — which means it’s not totally clear what the impact would be if several billionaires do decide to leave the state.
“I would say it’s hard for me to understand what the effects on the California economy are of four guys living in East Tahoe instead of West Tahoe,” Galle said.
Billionaires also tend to fund startups as venture capitalists, and Silicon Valley is still king when it comes to start ups.
“The literature tells us there should be minimal long run effects, because California is so successful at producing millionaires and billionaires,” Galle said. “There’s studies that find the odds of a tech startup, for instance, becoming a unicorn worth a billion dollars are much higher in California than anywhere else, and so, no one’s going to give up that golden opportunity, pun intended.”
One detail in the proposal has caught the attention of the tech startup industry. Whether it would play out as described is up for debate.
Garry Tan, CEO of Y Combinator, laid out his argument for this on X, using the Google founders as the example.
“Larry and Sergey can’t stay in California since the wealth tax as written would confiscate 50% of their Alphabet shares,” Tan wrote. “Each owns ~3% of Alphabet’s stock, worth about $120 billion each at today’s ~$4 trillion market cap. But because their shares have 10x voting power, the SEIU-UHW California billionaire tax would treat them as owning 30% of Alphabet (3% × 10 = 30%). That means each founder’s taxable wealth would be $1.2 trillion.”
Experts SAN spoke with including Shanske called that an “aggressive misreading of the provision.”
“Everyone who’s a billionaire has the option of submitting an appraisal of the asset that’s being taxed,” Galle added. “There are default rules for figuring out what hard to value assets are to help taxpayers figure out what their stuff is worth. But if they don’t like that default rule, they can always just submit an appraisal. So, the suggestion that anyone’s going to pay many times more than the asset is actually worth, they’re just silly because you just use an appraisal instead.”
Misinformation
We live in a world of misinformation, and if this measure does make it to the ballot, voters will likely have to sort through more of that.
“It looks like there’s a chance that a number of other initiatives might be on the ballot, many of them sponsored by opponents of this initiative that want to confuse voters into voting on various ways of undermining or blocking this initiative,” Galle said.
That includes the Budget Stability Act, which would raise the voter approval threshold from the simple majority it is now to a two-thirds majority necessity. Like the billionaire tax, this needs enough signatures to get on the ballot but it’s unclear how much progress has been made.
There’s also the California Residency Rules Act which would mean any person who spends 183 days or less in California has a valid driver’s license and is registered to vote in another state is not technically a California resident. This also needs a required number of signatures to get on the ballot.
“I would just encourage people to kind of keep an eye out,” Galle said.
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Ella Rae Greene, Editor In Chief
