Why California’s Billionaire Wealth Tax Might Raise Almost Nothing

California is always ahead of the curve. Sometimes they innovate and do fantastic things. Other times they get out a little too far over their skis. According to reports in the Times and elsewhere, a proposed California wealth tax targeting billionaires is already prompting some of the state's richest residents to really consider leaving the state before it reaches the ballot. This is something that the voters of California would vote on. Now here's the interesting thing about the proposal. It would levy a one time 5% tax on assets over $1 billion. Now fortunately this doesn't affect me. Not just because I don't live in California. I'm guessing it doesn't affect you. But apparently There are about 200 billionaires, multi billionaires living in California. It would potentially cost people like Peter Thiel, Larry Page of Google fame, billions of dollars. Supporters argue it would raise up to $100 billion for health care. Critics claim it could drive away capital entrepreneurs and create long term tax revenue problems for California. Okay, look, I think the supporters of this have their heart in the right place. I mean nobody likes taxes. I don't like taxes. You don't like taxes. But the government has to build stuff. It has to pay for stuff. Unless you are a radical extremist far, far right, 0001% of libertarians in the world, everyone acknowledges there has to be some way of raising revenue for government expenditures. You can quibble, honest people of philosophical integrity could quibble over this expenditure being valid or this one. Or should the entire percentage of the of the economy spent on government be 37% or 22% or 50. You can have honest disagreements about that. But no serious person argues that the government can't have any tax revenue. So the question generally is what's the fairest way to raise it? And a question that I don't think raises is raised often enough. What's the way you can raise the taxes to cause the least amount of discomfort or pain or suffering or inconvenience for taxpayers? You could have a taxpayer saying only people who make less than $40,000 a year have to pay and they have to pay 25% of their income. Boom. There's a bunch of money. But most fair minded people would say those are the people least able to afford it. And that would be a giant, giant chunk out of money they need just to keep a roof over their head or to pay for food. So that's probably not a good idea. So when you're looking at a one time 5% tax on the wealth that someone like Larry Page has generated A couple hundred million plus by most estimates. Boom. That's a lot of money. And let's say it's hard to corroborate this fully, but let's say he's worth $200 billion, which is a conservative estimate. If all of a sudden you're taking 5%. Wow, $10 billion to pay for health care in California. And could Larry page survive on $190 billion? I think so. I think anyone could. So that kind of passes the test of could you raise money, could you raise significant revenues, and could you do it without causing any inconvenience to people? The answer is yes. So at a broadly philosophical level and hold on, folks, before you start writing me off, I'm going to upset pretty much everyone on the political spectrum today. I think when you're looking at broadly philosophical perspective on this, it makes sense. It's a good idea. Now, let's look at this at a practical level. At a practical level, I think it is a disaster for California. Not because every smart person and every wealthy person will leave, but good luck actually getting any of this money. Because it's one thing I notice about really rich people, they don't even have to be billionaires, is they care about their money and they spend a lot of money on estate planning and lawyers who know every single tax loophole, and they're going to find a way to not pay. The other issue with billionaires is if you're worth a billion dollars or certainly Peter Thiel's estimated to be worth in excess of $30 billion. If you're Larry Pagewell, guess what? You have dozens of homes all over the world. Chances are slim that you even spend a majority of your time in any location. So when you have homes all over the world, it's just not that hard to say. You know what I think my residence will be the mansion in Miami rather than the mansion in Beverly Hills or the mansion in Silicon Valley. You can kind of pick. Now, interestingly, this proposal would backdate things. It would say if you had your primary residence in California as of January 2026, you still have to pay even if you move out of the state. Right. When this initiative passes. I don't really know if legally that will stand up to muster. But the one thing I know among billionaires, it doesn't matter if they are conservative, Republican, Peter Thiel, libertarian types, doesn't matter if they're sort of liberal, democr, Democratic, Warren Buffett types. They want to decide where their money goes. They don't want to just hand over A giant blank check to the government. So here's the bigger problem politically. When one party gets associated with taxing billionaires, and I think we know which party that would be, it galvanizes political support for the other party among billionaires, and I think we know what that is. So from a. If you're just a Democrat and you're looking at, yeah, I want to raise money, I want better health care for Americans, but I also want the chance that Democrats will actually be able to win elections and not be outspent on television and online ads a thousand to one. Maybe, just maybe, I don't want to alienate the richest people in the world who have billions of dollars to donate to political campaigns. I'm sorry if that sounds cynical, but politics is about what can you accomplish in the real world? And unfortunately, I feel about this issue the way a lot of conservative preachers feel about premarital sex. Back in the 1950s, 60s, even 70s, there were a lot of preachers preaching about the evils of premarital sex, of living together in sin if you weren't married. This was something that was, they could say was based on biblical values. Okay, you heard them talking about it on tv, at least I did. You heard a lot of conservative churches talking about that. Guess what? They're not really talking about that much anymore. The genie is out of the bag. It's, it's. That's not the right expression, but you know what I mean? You can't turn back the time. And there are many Democrats who say, if only we could go back to the time of 90% income taxes, which this country has in the 40s, 50s, and as late as 1962. I don't think we can ever go back because really wealthy people, they've learned a lot, especially in the last 40 years. They've learned how to organize. They've learned how to play politics. They've learned the lobbying game. They've certainly learned the political game of getting people in that support what you want. And I just don't think this is really going to help. Now let's look at the stats. Roughly 200 California billionaires could be affected. It could generate a hundred billion dollars again. In a perfect world, all sorts of things are possible. I say, good luck trying to get money out of these billionaires. Some like, like Peter Thiel would just say, okay, I'm a citizen of New Zealand. Good luck. Come and get me on the other side of the world. We'll see how that works. And again, someone like a Peter Thiel he already has a mansion in Miami and there's no state income tax in Florida. I'm frankly surprised he hasn't made that. His, his primary residence, Larry Page is worth, according to the Times, $258 billion. So his tax bill, I misstate, I said about 10 billion, it'd be about $12 billion. Peter Thiel's tax bill would be $1.2 billion. You're not going to get $1.2 billion out of Peter Thiel. I'm sorry, would it be nice? Sure. Would that pay for a lot of low income people's health care? Yeah, it would. It's just not going to happen. Now I certainly understand some of you say, well, T.J. with that attitude, we wouldn't have civil rights and there would be no gay rights. And to simply say attitudes can't change is defeatist. That's not really my point. My point is attitudes have changed and our political dynamics have changed and our media infrastructure have changed in America. All, all to give more power to billionaires. And the other problem is just it's never been easier to be mobile. There was a time when if you owned a particular coal plant and your family owned the land and all of your revenue came from that one town and it's 150 years ago and you're there, there's no Internet, there are no airplanes. Yeah, you could tax that guy because he couldn't really pick up and move to another city or another state or another country. States are gone. The billionaires are all involved in high tech stuff where they could pretty much live anywhere. Is it more convenient for them to live in California? Quite often because of deal flow? Yeah, but do they have to live in California? Well, no. Many of them left during the pandemic. They left for Texas, they left for Miami, but most of them went back. But they're not going to stay if they have to give $10 billion for the right to stay in California. California is a great place if you have unlimited money. The beauty, the interesting people, the beauty of the ocean, the beauty of the mountains, the landscape, the food, the entertainment, the intellectual capital, the universities like Stanford and Berkeley, It's a fantastic place, but it's not worth $10 billion if you're Larry Page. Now you can make the case, and I won't dispute you, that he should feel that he should give back. I mean, he was educated at Stanford. He came to this country from the Soviet Union, former Soviet Union. This country's made him wealthy. He should be happy. Look, I get it, but I'M sure he already does give a lot of charitable donations to worthy causes and he wants to control his money. And the bottom line is he's just not going to pay. So I, I think that this proposal, I, I can see where it would have a lot of appeal and it might pass. I don't think they're going to raise any money. And I think it's yet another example of people who are on the center, some centrist like this, the left, the progressive side, the Democratic side, are shortsighted. They need to fight other battles. Because even if you win this battle, short term, long term again, you're going to weaponize anti tax extremists. Because here's what happens as a practical matter, there are a whole lot of really rich people who are lovely people, very, very progressive on social issues, are anti discrimination, were in favor of gay rights and gay marriage 35 years ago and they just didn't like taxes. So they wrote checks to Republicans, conservatives who said, look, I don't even want to hear about any of your other policies. All you have to do is promise me you're going to lower my taxes, you're going to lower capital gains taxes, you're going to lower the estate tax. That's all I want. If you give me that. Essentially one thing, I don't care what you do, it's not going to affect my. You want to ban abortion, fine. No one in my family is going to be affected. They'll be on the first private plane to Sweden if they need anything like that. Do whatever you want, oppress the poor people, I don't care. Just keep my taxes low. That is in large part what has fueled our political campaigns and our political dynamic in America for the last 40 years. This is only going to make it worse for Democrats. And again, if there could be some one time pain of okay, we lose a few votes, place like California might not matter, but we gain all this money to pay for health care, I would be in favor of it. I don't think any of these rich people are going to pay. And I'm certainly not one of these who thinks, well, if you're a rich person, you're a thousand times smarter than anyone else. No, we've seen how Elon Musk has shown in the last year. You can be smart at one thing and be awful at other things like running Doge, but I do think that really rich people are good at one thing. They're good at accumulating money and not having it flow out willy nilly or randomly or without a big, big struggle. I do think really rich people are good at that. And they are no match for a government accountant making $87,000 a year. Who's going to be in charge of auditing? Larry Page or Sergey Brin or Peter Thiel? They're going to be outmatched and it's really not going to happen. Okay, let's look at what's happening in a few other countries because this is an idea that has gotten a fair amount of attention certainly in the last decade since Thomas Piketty wrote his magnum opus on wealth and capital. He's in favor of wealth taxes, but here's the difference. He says it's got to be a worldwide. It's got to be implemented on a worldwide basis. Otherwise billionaires just chop around to different countries. I do think if you're going to have a billionaire tax, it doesn't really happen without some kind of worldwide government. And I don't see that happening anytime soon. Maybe never. Let's look around at a few other countries. Switzerland tried something a little bit like this. They had a long running annual net wealth tax levied by municipalities in 2023. It raised about $9 billion according to some sources. But it was a much, much smaller percentage. And the they were not charging 5% on billionaires. It was a drastically smaller amount. Norway has done something a little bit similar. They had an annual net wealth tax, long standing, regularly tweaked. It raised about $32 billion in 2024. Spain tried something like last time I checked, I didn't think Spain had a lot of billionaires. But like any society, they have some people wealthier than others. They started this in 2023. It was a solidarity tax on large fortunes. It allegedly raised $623 million. So some of this went up. France tried something. France had a broad wealth tax and it did not go over well. France initially raised about $1.1 billion in 2023. But then there was a huge, huge backlash. They replaced it with a much narrower real estate focused tax. So the 5% is frankly much larger than anyone has tried before. Now they're trying to do this through a voter initiative so it doesn't require politicians actually voting for it and signing off on it. So that's what makes it a little different and a little special. I don't think it's a good idea for many reasons because the biggest one is I don't think it's really going to raise any money. There has been an attitude that has permeated American culture. Certainly for the last 45 years, which says wealthy people are the heroes of our society. And some of them are. They're heroes. They already pay a lot, they already give a lot, and they should be able to decide what to do with most of their money. Now, I would very much be in favor of, of eliminating a lot of tax loopholes, especially in real estate. I think it's very reasonable to say that Social Security taxes shouldn't be capped at the first 170,000. You should say that you should pay the same percentage of your salary in a Social Security or your earnings as someone who makes $80,000 a year. That's unfair. And that would, I think, strike a lot of people as a lot more reasonable. That would raise a lot of money. But the 5% tax on billionaires net worth, it's big. It's bold. I don't think it will work.