The Billionaire Tax Battle: CA vs. MO (And How to Pay Less)

This is a wealth tax, and that's different than an income tax.

Having to pay taxes on income and on gains is very much a compounding killer.

And I know a lot of people that still haven't done this, including Ben Fraser has not done this.

Whoa, whoa, whoa, whoa. Edit that out. You can't say that.

Welcome back, Future Billionaires. I'm Ellis Hammond, and today we are comparing two very different moves. I'm talking California's proposed billionaire wealth tax and Missouri eliminating their state capital gains tax. But no matter where you live, we will conclude with Bob and Ben's top strategies for protecting and growing your wealth. Let's dive in. I'm joined today with your host of the show, managing partners of Aspen Funds, Bob Fraser and Ben Fraser. Welcome, guys.

All right, let's go. Awesome.

Bob, so you were the first person I remember— this was not long ago, we were in Fort Worth and having dinner, and you were the first one to bring to my attention this proposed billionaire tax in the state of California. And I'm like, that is crazy, that cannot be happening. And come to find out you were right. I mean, I didn't— now that I didn't believe you, but it just seems so preposterous that this is a thing. Will you just explain to our listeners what is the proposal that California kind of has on the— or is trying to bring to the ballot in '26?

All right, well, it— this is a wealth tax, and that's different than an income tax. So an income tax is taxed based on what you earn. Wealth tax is based on what you you own. And so the idea is going after these billionaires with a wealth tax. And I believe it was, uh, you know, um, what was the percent? Was it 5%? Yeah, 5%. And I believe they'd have— it was retroactive. So it doesn't matter if you move, it's gonna— anyone who lives in California, it's too late.

It's already too late as of January 1st. As of January 1st. So I did read, so as of January 1st, 2026, even if you move it's retroactive.

Yeah. Yeah. Which is typical of overreach. And then you have 5 years to pay it. And so I can just imagine, you know, the angst this is creating. Oh, and very interestingly, it was not sponsored by the Democratic government or the legislature. It was sponsored by a third-party organization. So California has a very interesting political system that allows people and organizations to put measures on, on the ballot, um, to, to, to be passed. And, and interesting, you know, the Governor Newsom is actually opposed to this idea. Yeah. And so it's, it, it's kind of crazy, but, you know, it, it's, you know, getting a lot of traction and certainly a lot of discussion.

Yeah. For, for context, it is so far of a left policy that Governor Gavin Newsom is actually against the bill. I mean, this is, this is how far it's gone. And so to your point, Bob, I was doing some research. So here are list of billionaires who, you know, to your point, it's retroactive. However, they could— that's, that's as of January 1st, 2026. So in December—

I just want to make sure everyone understands exactly what we're saying here, because it's a wealth tax is on 5% of the net worth, right, of individuals. That is for very wealthy people, largely unrealized gains, right, from their stock portfolios and their real estate holdings. And generally, a lot of it's illiquid, meaning they can't just go sell 5% of their assets to pay for this. So it's, it's, it's, it's probably kind of an unprecedented thing that, uh, sounds kind of absurd if you understand the mismatch of liquidity and taxing on unrealized values.

Yeah.

I mean, it's, it's asset seizure, right? I mean, it's really what it is. I mean, there's, this is, this is going as far in my opinion as seizing assets. Here's the crazy thing. I don't know if you guys know this, but it's also in the proposal that, uh, it could effectively impose— read the— read, this is insane. Could it possibly, uh, effectively impose much higher rates, potentially 5 times the stated 5% for founders with significant voting control. So, for example, the founders of Google left the state of California in '25 because essentially the bill would multiply their tax, that 5% tax rate, by 5 times because they have voting— they have voting majority of the company. And so they wouldn't just be taxed on the 5% of their shares in Google. It would get multiplied by 5 times. That's literally what, what they're proposing. So, I mean, this would be not a 5% tax, uh, wealth tax on them. This could be, you know, as high as 15 to 20%, right?

Guys like that, it's, it's, you know, how to impoverish your state. And what, what people don't realize— so, so this is in a democratic world, right? It's very easy. The power of a human being is a vote, and it doesn't matter how much wealth that person has. If they, if they have the power to vote, they have the power to, to, to change, to change to affect policy. And so what happens, it's several million people ganging up on 260. And who's going to win that vote? You've got 260 people voting on one side, the billionaires, and you've got millions of people voting on the other side. And so what happens in a democratic kind of government, you're always going to have this desire to tax the rich, right? Or to stick it to the minorities, right? And the minorities in this case are the people that just have a handful of votes. And that's— and it sounds great, right? Let's tax the rich guys. They'll pay their, quote, fair share. The problem is this, that what people don't realize is these guys are job creators. They are wealth creators. So how much wealth has— let's just pick Elon Musk as a guy. How much wealth has he created for the United States and for California? I mean, he's built how many businesses? He's got Tesla, SpaceX, you know. PayPal. And each one hires people. They buy real estate, they consume, they create a massive amount of wealth. And so these people, you want these people and you wanna almost pay these people to be in your state because they create massive amounts of wealth for thousands and even millions of people. And, and it isn't fair, you know, um, but since when is life fair? Why, why is it, why is it fair that I'm way more handsome than everybody else in the planet, right? It's, it's just, it's not fair. And, uh, and, and nature isn't fair. DNA didn't deal us all equal hands. And, uh, so, you know, to me, this idea of fairness is, is really, um, it's just, it's, it's unnatural and it's weird. Fairness because life is not fair. People that have extraordinary gifts are extraordinarily recognized because they bring extraordinary value to others. And this goes in every area of life. And Americans, we love to celebrate the extraordinary, right? We see the extraordinary athlete, the extraordinary celebrity, the extraordinary actor. An extraordinary business person who all create value for us.

Yeah. And I mean, to even go on that a little bit, I know it's not, you know, you were blessed with your handsome genes, Bob, but Elon Musk and Peter Thiel and all these guys, it's— I don't even think it's really a matter of fairness. They, they work to create this value. It's not as if they were just handed this by God. Right. So I think it's a little bit deeper than that. To dive in this a little bit. By the way, I was looking at the Polly Market prediction right now. It's 51% chance is what Polly Market gives it at the moment. You could go bet on this 51% chance that the billionaire one-time wealth tax passes in California. It's a 60% chance today that it lands on the ballot. So it does seem— it does seem like there's a real shot at this happening. But what I've read is, you know, to your point, Bob, is these are wealth creators.

These—

this is actually where California is currently generating a lot of revenue. So you're going to get this one-time pump of income to the state. But what's not being talked about is they're going to lose a ton of annual revenue. A ton of annual revenue, correct? Wouldn't that be great?

Absolutely. I mean, if you see these people start to leave and I mean, there was, there was some organization that was rating, you know, kind of the business friendliness of various states. And of course, you know, you know, California, New New York, New Jersey are ranked super, super low. And New York is losing thousands and thousands of these job creators to low tax states like Florida and business-friendly states. And it's not just the taxes, it's overregulation. You look at, you know, a couple of the big refiners, I can't remember the names, oil refineries are moving out of California. They just, they are throwing up their hands and saying, we just can't deal with it anymore. Not only are we being thrown under the bus and opposed, you know, We're just trying to make this a profitable business, but now we're being demonized as bad guys because we're running oil refineries in California. And California has this unique gasoline. They're the only ones in the world that have this formulation of gasoline that requires special refineries. That's all being— and all because of the legal regulations there. That's all being now, you know, they're being forced out of business. And you're seeing it over and over, these states that are, that are again responding to kind of populist, you know, socialist ideals. But they're really shooting themselves in the foot because these people, they need these people. And you're going to see a big change in the fortunes of these states.

I want to ask, you know, for myself, I moved out of California not because I was a billionaire, but because I wanted a backyard. I know our producer, Katie, is also just moved from L.A., you know, Bob and Ben, why does this matter to folks outside of California or why are we bringing this up? Why do you want to bring attention to this for non-billionaires, people who don't live out of California?

What—

why is this a significant, I would say, headline for everyday investors?

You know, I think it really goes to a deeper ideology because there's been— I, you know, I believe that You know, there's been a bunch of politicians that have been pursuing these kind of ideas and kind of dancing around them for, for a long time. And, um, and the idea of a wealth tax is really a brand new, you know, kind of idea. As Ben said, it's never been done. I mean, you— and if you think about it, imagine you had a wealth tax and you have a, a million-dollar net net worth, and all of a sudden, you know, and most of that's in your house. It's not like you feel rich or anything, you just happen to have a net worth. Well, now in order— you have to sell your house in order to pay the taxes or borrow to pay this. And this is where a lot of these wealthy people are business owners and it's illiquid. And so, I think it puts a real chill in business owners to think, gosh, you know, where does it stop? When is just— when can I just pay my fair share, meaning a fair percentage like anyone else? And so I think it goes to a deeper ideology. And, you know, we're seeing certain groups are trying to push the envelope. And I think we'll see how far it goes. So, you know, it's definitely— it's a, you know, I think a lot of people are paying attention because this is an ideology that if it spreads could really affect everyone and can have real negative impacts as well.

Okay, so on the flip side, we're talking about California. On the flip side, closer to us— actually, you guys both live here in Missouri— it just went the opposite way. So they eliminated their state capital gains entirely, meaning there's no more capital gains tax in the entire state of Missouri. Um, so first off, I want to get both of your reactions because you literally have a Missouri zip code. What, what do you guys think about this?

That's crazy. I mean, and it just shows the mentality there You've got some people that understand the economic realities or that, you know, and this is where, you know, back in the Reagan days and of course, Reagan, you know, some people are big fans and some people weren't. And he had this idea that, hey, let's lower taxes. And what happened is he lowered taxes and tax revenues went up. And it was mind-blowing to people. But what happens is the world is not static. That the modelers of these, a lot of these, you know, these policymakers, they model these things out in a static world. Hey, we're going to raise taxes and that's going to be X percentage of more revenue. What they don't model is behavioral changes that actually, that means people are going to change what they do. They're going to move locales or they're going to change their behavior. And for the positive or the negative, in this case, You know, for the state of Missouri, well, let's invest now. Let's, let's live in Missouri because, you know, let's go move to Missouri and let's go, go, you know, sell our assets there as residents of Missouri or start a Missouri business because, because we have favorable tax situations. And this is what people don't realize about policy is that it's, it's not static. It makes, it makes behavior change. And so to me, I respect a politician like this who understands the economics. I always thought that they really should require politicians to take Economics 101 because it's just some of the, some of the policies that come out are so economically moronic and ridiculous that, that, you know, we really should— we need politicians that are actually educated in economics and understand these kind of realities.

It's going to be interesting to see how this continues to play out because to your point, I mean, California is really the leader in a lot of ways where, you know, is what California does, the rest of the country, you know, does to a lesser degree. But it is interesting to see kind of the opposite reaction with Missouri. And, you know, I think what's kind of missed here by a lot of politicians, you're kind of saying it, but the one of the beautiful things that makes America such a great country is the innovation that we have and that we incentivize. And the reason that we have such strong GDP growth relative to, you know, all other countries in the world really is because we reward entrepreneurs and we reward those that take big risks. And, you know, I think about an Elon Musk, you know, yeah, he's made a lot of money and he's probably going to be a trillionaire at some point, which is kind of insane to think about, but he also continues to bet all of his money and all of his resources back into creating more businesses that ultimately are trying to benefit humanity in a lot of different ways. And he's doing things that most people would never do, right? He made 9 figures in his PayPal exit when most people would say, "Hey, I'm just going to retire and be done. I made all the money I need to make." He went and bet it all back into Tesla, into SpaceX. And to me, those are the types of people that we need to reward. And that's great that they benefit because as a country, we've massively benefited, benefited by a huge factor. And it's going to be interesting to see how this plays out at a state level, because I think you're going to start seeing a lot of winners and losers. And we're starting to see this over the past few years where there's been a pretty big exodus from California into, you know, states like, you know, Texas, states like Florida, Nevada that are, you know, very clearly more business friendly. And they understand that, hey, if we attract the business owners, we attract the entrepreneurs, that will actually result in more tax revenue over time because they're driving GDP growth. They're driving job growth and, and, uh, you know, state revenue growth. And that's what ultimately drives tax revenue, not a short-term money grab. Um, uh, that is really going to stifle innovation and, you know, stifle the things that have made You know, California is so attractive for so many people.

Such a great point. And we just had a great interview with Dr. Peter Lindemann, an economist, and he said, hey, name 15 companies or name 10 companies that have started in the last 15 years in America that are the greatest companies in the world. And of course, you could list off 10 companies easy and probably 100 companies. And he said, do this for Western Europe. Name companies that have started in the last 15 years that are world-changing companies. And I'm like, I know a lot of European companies and I can't think of one. I mean, there probably are. And he's making this point, Ben, that there's a lack of innovation and other things. And they have a very high socialistic tax system. So how hard are you going to work to earn another dollar if 50 cents of that dollar are going to someone else? And how hard are you going to work if 80 cents of that dollar are going to someone else? You're going to be like, you know what, forget it. I am just going to retire on my boat. And, you know, socialism has a huge appeal in, especially to the younger generations and those who haven't experienced it. It's really the truth of it. And it goes like this. You know, Marx, Marx is famous for the statement, You know, from each according to their ability, to each according to their need. And it sounds great. Boy, let everyone give according to their ability and let everyone consume according to the need. And it sounds like, gosh, this, this, this incredibly awesome thing. But the reality is this. So what if, you know, Ben, you're going to start a business and you're going to start Tesla 2, but you're never going to make a dime from it. You're never going to have a dollar. It's going to go to the masses. It's going to go— are you going to go do that? Are you going to endure the, you know, the late nights and the sacrifices to your family and all this? And the answer is no, you're not. And that is why taxes matter. That is why taxes matter. You want to reward the innovators. The truth is the 1% who are the greatest innovators in the world create incredible amounts of value multiplication for millions, for millions. The 1%ers are the most important people on the planet. And yeah, you can think of the 1%ers, hey, the guy who inherited the Rockefeller fortune. Yeah, but that's not the norm. Most of the 1%ers are people who started something from nothing and are true major innovators. And you want these people around. These are the ones that are generating massive amounts of that create massive amounts of productivity growth and massive amounts of economic and GDP growth. Think about the AI boom. You know, what if we never had that? What if we never had the internet invented? What if we never had, you know, the electric car invented? What if we never had electricity come forth? How would our lives be different? Oh, massively different. And we'd all be very poor. And so we want the 1%ers empowered. And that means, yeah, let them have their cake and eat it too.

Wow, that's great. You know, reading about the Missouri is exactly what you guys are saying. You know, a lot of the cons are people complaining that this just benefits mostly the wealth, that it's— there's, you know, from a calculator standpoint, you make that such a good point. When people are proposing this or when, you know, politicians are building this, they're looking at kind of a snapshot. They're doing this on a calculator. If we do this, we're going to lose $360 million a year from capital gains revenue. But to your point, they're not considering the behavior, right? The long tail of this. And that's what the whole— I mean, literally every article is like, well, this only benefits the wealthy. And to your point, in the short term, they're exactly right. It really does probably only benefit the wealthy. But from a long-term standpoint, you're making the case. And of course, I believe you're right. And apparently so does Missouri, that this is going to bring more revenue. And what's interesting, I don't believe Missouri really is the best funded state. I mean, I drive across state line and think Missouri needs a lot more money from their roads and whatnot, right? So it's not like they're in a position of real power to do this.

Exactly. I'd be happy to pay a little bit of capital gains. I would get my potholes fixed.

Yeah.

I mean, if you don't live in Missouri, like, trust me, the roads are terrible. This is not the most well-funded state. So this is not like them coming all of a sudden and saying— like, this feels like a real strategy, in my opinion, for them to try and get things turned around. So guys, I want to— I want to transition You know, the reality is most folks listening are not living in California or not living in Missouri. However, taxes are a huge deal. It's probably one of the biggest things— wealth killers, you might say, other than volatility. I mean, it's definitely up there for high-income earners no matter where you live. And so I want to switch gears and, Bob, actually start to, you know, pull from some of the content that you and Ben put in the book about what high-net-worth individuals, high-income earners can actually do to protect and grow wealth. And so there's 4 or 5 strategies that I quickly want to just talk through today to just give some people some real actionable things that they can take away from this. So let's jump in here. One of the things you talk about early on is a balance sheet mindset versus an income mindset. Can you guys describe what that is and why that's significant?

Yeah, I mean, at its most simple, it's Understanding that you can make your money work for you, right? Instead of being a slave of your time to have to earn your income, if you buy assets, you build assets and businesses, you can get those to a point where they can actually start to earn more income while you sleep and without you having to put more effort into it. And that's one of the most powerful things that a lot of ultra-wealthy investors do is they leverage the assets and they leverage the unrealized gains from these assets to then go and do more income-producing assets. And it can be this, you know, compounding factor that helps you, um, you know, escape, you know, the cycle of, you know, more time, you know, higher income but higher taxes. And, and like you said, having to pay taxes on, on income and, and on gains is very much a compounding killer. So as much as you can defer taxes, as much as you can eliminate taxes, that speeds up, uh, very, very substantially the longer you go.

And one thing you've said in the past too is once you get to a certain income level— I guess this is really true at every income— like, what, even if you're at $100K and you're going to $1 million of income, it becomes less impactful because you're paying more in taxes the higher you go too, right? So from an income standpoint, if you're just thinking about how much you— how much income you earn versus your balance sheet, it's actually— you're compounding less because you're getting taxed more and more with every more dollar you earn from an active standpoint versus a balance sheet. You're able to grow and compound that.

Exactly.

Exactly right. Another thing you guys talk about, Bob, this is interesting. And first time I really ever even consider this was building an LLC or an entity around your investments. Can you talk about that strategy and how you've leveraged that over the years? It's huge.

It is absolutely one of the very first things you should do. Okay? Is build an LLC. And I know a lot of people that still haven't done this, including Ben Frazier has not—

Whoa! You can't say that.

And it's absolutely one of the very first things you need to do is create an LLC which holds all your assets and has just so much advantages now, you know, including the fact that, you know, your trust can own them and you avoid probate and you can adjust control those assets but then now you can add Add things like a solo 401, and which I just did this year. I did for the first time, always wanted to do it, and I finally did a solo 401. And you can have a Roth or traditional version. And think of a solo 401 as like a gigantic IRA. So, they're like IRAs, but they're way bigger. And so, you can put in as much as you want. And the older you get, the more you can put in. And there are some constraints. I won't go into all those, but you can do a Roth or traditional version. And I did that this year. And because my LLC, my LLC that owns my investments is a— it has no employees, right? That's what a solo 401 is for, is businesses that have no employees. So it is a real business. And this real business is, by the way, a real business. I buy subscriptions, I study, I I go to conferences, I join masterminds, all these, all these things for to improve my investment business, to find, to find better investments and a way to make more profits and more money for my investment business. And all those things that I'm going to do, by the way, are expenses that I can deduct against that investment business. And so, and it forces you to approach your investments, one, like a business. and which you should. I argue in the book very early on, I said, you know, think of your investments not as I'm going to do some investing, but I'm going to start an investment business. And if you're going to start an investment business, you're going to do it right. You're going to study, you're going to learn about everything. You're going to invest in this business. And that's what you should do. And so, yeah, you know, as you know, solo 401 is a fantastic, fantastic thing to do. And you can put in as much as $70,000. Into this every year into your 401. So, you can put a lot of expenses in there. I attend masterminds. I, you know, you can buy an airplane. I have a friend that anytime he was getting ready to pay some taxes, he buys an airplane because airplanes have massive amounts of tax deductions. You can get, right now, I believe it's, you know, is it this year 100% or 90% bonus depreciation? And so, you can get 100% bonus depreciation. You buy a million-dollar airplane, you get a million-dollar tax deduction. And you can donate, you can put it to, you know, give it a dry lease to a flight school. And they're fantastic deductions. And all of a sudden now you've got these big deductions. You're losing money in your business, quote, losing money, paper money. And now you do Roth conversions. So, you take all your IRAs and your solo 401s that are traditional and you convert them into Roths because your tax bill this year is low. And I did that this year as well. So, so, you know, there's a lot of ways to play the tax game.

This is so good. You actually answered— you actually went through every single strategy just now. And I'm going to tell you why. It was so good. Didn't you ask your questions? But because you're stacking, I want to get to that in a minute. However, for clarity on the Roth thing, so you're saying because when you do the conversion from traditional to Roth, you're going to pay that income tax, you want to do that on years that you're— you're—

the years you bought an airplane.

Yes. Wow, that's really good. I actually didn't consider that. That makes a lot of sense. And what you're saying there is so, so powerful because it starts with a balance sheet mindset, right, versus an income mindset. And then investing with an LLC allows you to do a solo 401 because you can't do that from a— if you have employees or if you're an employee, you have to be the business owner with no employees. So that allows you to, to Ben's earlier point, compound wealth you know, before any of it's being taxed. And then I, to your point, you now you're stacking in down years or years you're able to, you know, show losses with your Roth conversion. So these are the, it starts with the balance sheet mindset and then you can begin to really stack and compound this on top of each other.

That's brilliant. Exactly.

Hey, thanks for listening. If you enjoyed this episode, you want to explore more from iLab, head over to investlikeabillionaire.com/iLab. That's where you're going to find our new and free investor community and details on our upcoming 2026 Macro Economic Outlook. Let's keep the conversation going. See ya.