California is home to more billionaires than any other state, and they already shoulder a disproportionate share of the state tax burden. Yet California is considering a ballot initiative based on the familiar fantasy that the state’s fiscal problems and policy ambitions can be solved by further taxing the rich. The proposed 2026 ballot initiative would go further than anything previously attempted, imposing a one-time wealth tax on California residents that would confiscate 5% of their net worth above $1 billion to fund health care programs. But the plan would be counterproductive, even from a revenue-raising perspective.
Billionaires and other high-net-worth residents already pay exceptionally high taxes. California has one of the most progressive tax systems in the country. The top 1% of earners account for roughly half of the state’s personal income tax revenue and pay the highest total tax rate. This makes California’s tax revenues heavily dependent on a small number of taxpayers, including the 200 or so billionaires.
If enacted, the billionaire tax would retroactively apply to anyone who lived in California as of Jan. 1, 2026. As a result, despite still needing enough signatures to appear on the ballot and then be approved in the November election, the measure may already be driving away some of California’s most valuable taxpayers. Some billionaires, such as Google co-founder Larry Page, have already left California for more business-friendly states, citing the proposed wealth tax as a contributing factor. Others, such as Peter Thiel, publicly indicated they are considering doing the same.
As these billionaires leave, California loses future tax revenue it was counting on to fund day-to-day government operations, along with the billionaires’ investments, future business ventures and general spending in the state. Since the mere consideration of this tax scares away billionaires, it raises the question of whether, if enacted, it would generate enough revenue to offset potential massive losses.
Proponents of the wealth tax want the revenue dedicated to health care spending. But a one-time confiscation of wealth is not a sustainable funding model for a permanent, growing program, especially one like health care, which would become politically entrenched as residents come to rely on it. Even under optimistic assumptions, the revenue raised from the willing billionaires would be short-lived. New health care programs, on the other hand, would not be short-lived and would require much more than a one-time infusion of funding.
Health care costs are expected to rise far faster than inflation over the coming decades. As the population ages, birth rates fall and the ratio of workers to beneficiaries shrinks, demand for medical services is projected to grow, while the tax base becomes constrained. A temporary infusion of revenue does nothing to address these structural dynamics.
California’s state and local governments already rank seventh nationally in per-capita long-term debt, with about $20,300 per state resident, Reason Foundation finds. California has more than $800 billion in long-term obligations, the largest total of any state. The nonpartisan Legislative Analyst’s Office says the state “faces an almost $18 billion budget problem in 2026‑27” alone. A one-time confiscation of private wealth fixes none of this.
Wealth taxes have been tried repeatedly across Europe and largely abandoned after producing less revenue than promised while imposing high administrative and compliance costs. France, Germany and Sweden are among those who approved wealth taxes and, years later, repealed them in hopes of recouping the investments and capital that fled with their owners. By further taxing its billionaires, California would be falling into the same tempting but failed policy.
Rather than driving away billionaires, entrepreneurs and innovative companies, California should implement structural reforms that right-size state government and position the state for long-term financial sustainability. The state needs to stop the growth in spending that is driving debt and deficits. It can do this by using performance-based budgeting to identify and eliminate unnecessary spending and redundant programs, sell unused property and underutilized assets, pay down public pension debt that is increasingly siphoning funding from other priorities and reduce the runaway costs of Medi-Cal.
California’s current and long-term fiscal problems were not created by billionaires. While taxing them may feel cathartic to some, it’s neither a smart nor a sustainable solution to California’s debt and deficits.
Trujillo is managing director of government finance research at Reason Foundation.