The most important choice California voters make this November won't be who represents them in Congress, Sacramento or city hall. It will be the fate of Proposition 40, better known as the "billionaire tax."
Proposition 40 is among the most radical tax proposals in U.S. history. Instead of taxing income, it would impose a one-time 5% tax on nearly every form of wealth billionaires hold, in effect punishing people for amassing money, business interests and valuable property.
The tax would apply to wealth held anywhere in the world, not just in California. Individuals, married couples and certain trusts that meet the threshold would all have to pay. By the count of the measure's own authors, California is home to about 260 billionaires worth a combined
$2.3 trillion.
Supporters say Prop 40 would raise $100 billion over five years, the period during which billionaires could pay it off in annual installments.
Backers are selling Prop 40 as a lifeline for Medi-Cal, California's Medicaid program, and 90% of the revenue would go to health care. With federal cuts phasing in, Medi-Cal could need tens of billions of dollars over the next decade to stay afloat. But Prop 40 would do California far more harm than good.
Wealth taxes drive revenue away
Wealth taxes have a long record of failure. The number of developed countries taxing individual net wealth fell from 12 in 1990 to four in 2017, as one European nation after another repealed them. Punish business owners, investors and other wealthy people, and they leave for greener pastures. That's common sense, and California has been living it for years.
Driven out by high taxes and a hostile business climate, departing residents took a net $91.4 billion in income out of California between 2019 and 2023, according to IRS data. Higher-income households have made up a growing share of those leaving.
A 5% wealth tax would only push more wealthy Californians out the door, especially because nothing guarantees this "one-time" tax stays that way. Once the state has the power to tax wealth, nothing stops the next ballot measure from using it again.
High-profile billionaires are already gone, including Google cofounders Larry Page and Sergey Brin. Seven billionaires have publicly left the state, taking roughly $540 billion, or 30% of California's billionaire wealth, out of Prop 40's reach.
That exodus all but guarantees Prop 40 will fall far short of what's been promised. Proponents claim $100 billion over five years. Stanford economists Benjamin Jaros and Joshua Rauh estimate it will raise only about $30 billion.
Worse, they estimate the departures will cost California $1 billion to $3.5 billion a year in lost income tax revenue, enough over time to wipe out whatever Prop 40 collects.
The long-term implications are even more troubling. Billionaires only have so much wealth, after all. If the state comes to depend on wealth taxes, it will eventually have to reach beyond billionaires. The more wealthy people leave, the more officials will raise rates or widen the net to replace lost revenue, and the more people will leave. That's how a state ends up in a wealth-exodus death spiral.
Supporters argue that because Prop 40 applies to billionaires who lived in California on Jan. 1, it's already too late for most of them to escape. But even a progressive budget think tank concedes that the provision will likely be challenged in court, and there are good reasons to believe the current Supreme Court would strike it down. At the very least, the fight could take years.
And two countermeasures on the same ballot, Props 41 and 42, could void Prop 40 even if it passes.
California has a spending problem. Prop 40 can't fix it
The truth is, California already has plenty of tax revenue. The problem is not that billionaires are too wealthy; it is that the state wastes massive amounts of tax dollars on failing programs and bloated government bureaucracies that other states don’t have.
California's state government collects nearly $7,000 in taxes per resident, among the most in the country. Florida, which has drawn many of the businesses and wealthy people fleeing California, collects about $2,700.
If California wants a stronger economy, more help for low-income residents and better-funded programs, it should do the opposite of Prop 40. Cut taxes, trim wasteful spending, shrink the bureaucracy and ease the regulatory burden. Give wealthy people and successful businesses a reason to want to live and work in California again.
That blueprint has worked in states like Texas and Florida, which have posted the country's biggest population gains in recent years. It can work in California, too.
If California keeps taxing away the people and businesses that fuel its economy, the ordinary Californians left behind will pay the steepest price.
Justin Haskins is a New York Times best-selling author and the president and a senior fellow at Our Republic, a national nonpartisan think tank.
This article originally appeared on USA TODAY: California voters will pay price if 'billionaire tax' passes | Opinion
