The proposed 5 percent wealth tax on the California ballot this year has sparked opposition across the political landscape. Planned Parenthood Affiliates of California, the California Teachers Association, and Governor Gavin Newsom, a Democrat, are among those against it. This plan aims to tax the accumulated assets of the ultrawealthy, and it is touted as a measure that only billionaires would resist.
The rationale against the wealth tax is grounded in historical precedents and economic calculations. In the 1990s, 12 industrialized nations implemented wealth taxes. However, by 2025, nine of these countries, including Denmark, Sweden, Germany, the Netherlands, and France, repealed their wealth taxes. The difficulties in enforcing these taxes and their unintended consequences became apparent. Wealth taxes in these countries prompted affluent individuals to relocate, taking their wealth with them. Thus, the expected tax revenues fell short. France’s wealth tax resulted in an estimated 200 billion euros leaving the country over two decades, causing a budget shortfall of seven billion euros annually. France repealed its wealth tax in 2018.
California risks encountering similar negative outcomes. Based on an analysis of 212 billionaires in the state, the proposed tax might raise only $40 billion, far less than the $100 billion projected by its supporters. Before the December 31, 2025 residency deadline, several key billionaires, like Sergey Brin and Larry Page, had already left California. Consequently, around 30 percent of the taxable billionaire wealth exited before being subject to the tax.
The departure of these wealthy residents could have more severe effects in California than in European nations. Moving out of state is often simpler than relocating to another country. The loss is not just the immediate wealth but also the ongoing income tax revenue these billionaires would have contributed over time.