While it appears that Proposition 40, the proposed wealth tax on next month’s ballot, may be struggling at the polls, the mere pendency of the initiative has already inflicted economic damage to California. The list of millionaires and billionaires who have moved out of state grows every day.
In an article by Michael J. Bologna in Bloomberg Tax, six of California’s most famous billionaires have already bailed out seeking to avoid the imposition of Proposition 40’s 5% levy on accumulated wealth. “Google co-founders Sergey Brin and Larry Page, venture capitalist Peter Thiel, auto-finance titan Don Hankey, Uber co-founder Travis Kalanick, and filmmaker Steven Spielberg all left ahead of the Jan. 1, 2026, residency cutoff specified in Proposition 40, the Billionaire Tax Act.” Like some of the few lucky passengers on the Titanic, they hopped on lifeboats before the ship went down.
With visions of endless tax dollars dancing in their heads, Prop. 40 supporters are in a state of denial about how California’s wealthy will react to the allegedly “one time” tax. But the data is already there. The Hoover Institution has calculated that the wealth tax “would leave the state worse off by an estimated $25 billion once lost income tax revenue is considered.” Moreover, the “analysis finds that the billionaire tax is likely to raise far less revenue than advertised, and once lost income tax revenue from departures is considered, it is likely to leave California worse off financially.”
Of course, it is not just billionaires who are packing their bags. As this column has repeatedly covered over the last three decades, California’s high tax, high regulation environment is the major driver of people moving out of state. A study of IRS data by the National Taxpayers Union Foundation found that California is losing a taxpayer roughly every minute, as states like Florida, Texas, and North Carolina attract new residents due to lower taxes and higher standards of living. The study notes the comparison with Florida,which gains a new taxpayer every 2 minutes and 9 seconds and with Texas which gains one every 2 minutes and 53 seconds.
Even those who stay in California, either by choice or by circumstance, may continue to feel some hopelessness by the failure of our political leaders to represent the interests of taxpayers and productive businesses. Many are simply resigned to pay the “California Premium” of high taxes.
But while the damage inflicted on the Titanic by the iceberg was way too severe to be corrected, the same is not true for the ship of state that is California. In short, it is not too late.
But what could turn things around? What message could California voters send that might convince Californians who are on the bubble about moving out to change their minds?
As noted above, support for Proposition 40 is diminishing. And while taxpayers should be grateful for any win, a resounding defeat of the wealth tax would be a stern warning to the most progressive forces in California that we are taxed enough.
While rejection of Prop. 40 would be welcome, it would merely maintain the status quo. On the other hand, rejection of Proposition 3 would result in an actual tax reduction in 2031. Recall that the high income tax rates approved in 2012 were advertised as “temporary.” But they were extended once already in 2016, again represented as a temporary extension. But Prop. 3 would make California’s highest income tax rates in America permanent.
(Caveat: If voters reject Prop. 3, proponents would assuredly come back and try again before the actual expiration. But rejecting 3 now sends a powerful message on behalf of hard-working Californians.)
Proponents of Prop. 3 predict disaster if the measure is rejected. But keep in mind that if these “temporary” income tax rates go away, California’s top income tax would revert to 9.3% (except for very high income taxpayers who would pay 10.3%). Moreover, that 9.3% rate kicks in when income exceeds about $72,000 meaning that, as the base rate for most income earners, it is still much higher than the highest tax rates in all but seven states.
In short, it is not too late to save California. Remember, even the Berlin Wall came crashing down. It could happen here as well.
Jon Coupal is president of the Howard Jarvis Taxpayers Association