The Risks of California’s Proposed Wealth Tax

The proposed 5 percent wealth tax on the California ballot this year has sparked significant debate. While some view it as a harmless way to generate revenue, many leaders from various sectors, including Planned Parenthood Affiliates of California, the California Teachers Association, and even Governor Gavin Newsom, stand against it.

Critics argue that taxing the accumulated assets of ultrawealthy Californians would fail to benefit the state significantly while potentially harming its economic stability. Looking at global examples provides context. By 1990, twelve industrialized countries imposed wealth taxes. By 2025, nine of these had repealed these taxes, citing challenges in enforcement, the migration of wealthy individuals, and revenue shortfalls. Notably, countries like Denmark, Sweden, Germany, the Netherlands, and France have abolished wealth taxes for these reasons.

France serves as a cautionary tale. The country abolished its wealth tax in 2018 after an estimated 200 billion euros ($228 billion) left the country over two decades. The tax resulted in an annual budget shortfall of 7 billion euros.

The situation in California could replicate or even surpass these negative outcomes. Analysis of 212 California billionaires, the primary targets of the tax, reveals that the wealth tax might only generate $40 billion, rather than the optimistic $100 billion forecasted by its supporters. For instance, high-profile billionaires such as Google co-founders Sergey Brin and Larry Page exited California before the residency cutoff date of December 31, 2025. This exodus reduced the taxable wealth base by about 30 percent.

Economic implications of this migration are concerning. Each billionaire leaving California also deprives the state of ongoing income tax revenue that could have increased over time. The ease of moving out of state compared to relocating internationally may worsen the outflow of wealthy residents beyond what European nations experienced.