If any state in the union needs “re-branding,” it’s California.
The sun still shines. The Pacific Ocean still beckons. But today, it’s known as the state that punishes success, when it was once the land of opportunity.
Today, the state’s reputation revolves around “unaffordable housing,” “taxed to death” citizens, “highest gasoline and energy prices in the nation,” and the best and brightest are “moving out.” Texas, Florida, and Tennessee are saying: “Thank you, California.”
The newest cut to this ailing reputation is the wealth tax ballot measure, Prop. 40, known as the “Billionaire’s Tax.” It’s up for a vote this November – and it may pass.
The state wants 5% of every billionaire’s net worth – regardless of whether it was made in California. The impact on everyone else is already being felt. Just the threat of this asset-stripping tax has already accelerated capital flight out of the state. In the last year, the state has lost at least 10 billionaires, and along with them goes their future taxable income.
The idea that a wealth tax will increase state funding is a folly. The Hoover Institution and other think tanks and research institutions have calculated it will result in “negative tax revenue” of up to minus $25 billion over five years.
It doesn’t have to be this way.
The tax won’t end with billionaires or even multi-millionaires. It will, as it always does, trickle down to smaller businesses and regular workers who find that their jobs disappear, and the companies are better off elsewhere.
It’s just old-fashioned American common sense. If you tax success, you kill incentives for success.
California’s Democratic Party is split on the issue. The endorsement squeaked by with roughly 61% of executive board support, despite opposition from Governor Gavin Newsom, trade unions, medical groups, and other fiscal voices who see the long-term danger.
California already has the highest top marginal income tax rate in the nation, and reliance on more volatile, punitive levies will likely create a boom-and-bust cycle that drives California’s success to other states.
But not everyone is complaining.
This shortsighted approach may be awful for California’s hardworking taxpayers … but it’s great news for Nevada, Arizona, Colorado, and everywhere else that will benefit from the new jobs, the new businesses and the new opportunities that will arrive when everyone who can … departs.
Our newest research shows Americans care most about affordability, not sticking it to billionaires.
In fact, the vast majority (74%) say wasteful spending is the biggest problem, not taxing more. Americans tell us they want our state and federal governments to be more responsible with the money they get from taxpayers. They want their tax dollars used wisely.
A Revenue Mirage
The core flaw of Proposition 40 is a naive premise: that wealth can be isolated and extracted from roughly 200 ultra-wealthy individuals without altering the broader economic ecosystem.
But wealth rarely sits idly in a vault. It’s tied up in equity, operations, employees, and equipment. Proponents argue this only affects billionaires, but history shows taxes like these rarely stop at the top.
California’s job creators and businesses, from Central Valley farms to Silicon Valley tech firms to Inland Empire logistics firms to Los Angeles manufacturers, often operate on tight margins and heavily invest and reinvest into operations and employees.
In addition, Proposition 40 is likely to raise far less revenue than its backers claim, while eroding the state’s long-term tax base. Wealth taxes are notoriously difficult to value and enforce, inviting years of litigation and valuation disputes that shrink actual collections well below projections.
California boasts it’s the fourth or fifth largest economic power in the world. Well, over the past three decades, European nations that once championed wealth taxes, including France, Sweden, Germany, Denmark, and Austria, have abolished them. The Netherlands, Finland, Iceland, and Luxembourg all dumped their wealth tax laws in the early 2000s.
We’ve seen and experienced those who have tried wealth taxes. They’ve seen shrinking, not growing, tax bases as residents and capital departed. So why are we going to make the same mistakes and suffer the same consequences?
Demise of ‘The Golden Goose’
Dedicating a temporary windfall to patch healthcare shortfalls, or any state budget priority, while eroding the state’s golden goose of long-term revenue, is short-sighted governance.
Over the next several years, if passed by voters, Proposition 40 could plausibly cost California more in lost economic activity and departed taxpayers than it ever raises, leaving the state’s budget worse off, not better. The impact on the average, hardworking taxpayer could be devastating.
Yet by blessing this measure, California Democrats are signaling that capital formation is no longer a priority in the Golden State.
The real issue is we have a wasteful spending problem, not a tax revenue problem. The state doesn’t need more taxes. It needs to better manage the funds it already has and stop wasteful, uncontrolled, mismanaged, and even corrupt spending.
California has a chance, once again, to be the nation’s Golden State, but it needs to offer policies that ensure a healthy economy, good American jobs, and an affordable lifestyle.
Punishing success? It’s not a golden idea.
Frank Luntz is a communications strategist and political pollster. Pat Soldano is president of Family Enterprise USA Action, a non-partisan organization advocating for family-owned businesses.