The political left has never seen a tax scheme they weren't in favor of. The left as it is today is the living proof of Ronald Reagan's maxim, "If it moves, tax it. If it keeps moving, regulate it. And if it stops moving, subsidize it." Democrats across the nation are positively giddy at every new plan to suck income and wealth away from the wealthy, which most on the left define as "anyone who has a dime more than me."
Some of the dumber schemes ever concocted along these lines are wealth taxes. These shouldn't be confused with income taxes; income and wealth are not the same thing. Income can become wealth, can contribute to wealth, but wealth isn't always liquid, and it is frequently put to work building more wealth, which wealth taxes discourage. That's a bad thing; it's a very bad thing.
Now, California may well see an initiative to put in place one of these bad things.
A just proposed initiative to impose a one-time wealth tax on billionaires summarizes why California has fallen from the fourth to the fifth largest economy in the world. State policymakers continually view the private sector as a piggybank to be raided whenever it pleases them. The irony is that the state’s anti-growth policies are making the state’s long-term budget outlook worse, while also undermining our prosperity.
The logic of the wealth tax is as simplistic as it is wrong. According to the authors, 200 billionaires live in California with a total net worth of $2 trillion. They then deceptively claim that billionaires are undertaxed relative to other Californians by comparing their current annual state income taxes paid to their wealth. California does not impose taxes on wealth (at least yet). It taxes income. Therefore, this comparison is completely irrelevant. But it is enlightening.
Taking the authors’ numbers to be accurate, then the 200 billionaires paid $30 billion in taxes – paying 1.5 percent on $2 trillion in wealth. Presuming these are mostly income taxes, and given that total income tax revenues for FY2025-26 are expected to be $129.6 billion, these 200 billionaires are paying for over 23 percent of the state’s total income tax revenues. As the FY2025-26 e-budget noted, the top one percent of income earners, around 170,000 taxpayers, account for more than 40 percent of the total personal income tax collections. This overdependence on a minority of taxpayers is due to California’s highly progressive tax system.
Of course, the left always maintains that the "wealthy" are undertaxed, when by any objective measure, they are in fact paying the lion's share of taxes of all kinds, and by a wide margin. This California proposal, granted, is a one-time tax; for now. If anyone thinks that this would be the last such attempt, they're sadly deluded. And this proposal, should it be approved - it's very early days on that front - would target only California's 200 or so billionaires. It is, furthermore, a tax levied on wealth, which in many (probably most) cases was generated by investing income, which has already been taxed.
If this were placed on the ballot and passed, many of the wealthy would promptly pack up and leave the state. These are the people with the most capability of just up and moving to a more tax-friendly jurisdiction, after all.
Read More: Income and Wealth Inequality: Are They Inevitable?
'Fair Share Amendments' and Other Wealth Tax Schemes—Are They Constitutional?
This isn't the worst thing about a wealth tax, however. Democrats love to push some caricature of the wealthy as all having a big Scrooge McDuckian swimming pool full of gold coins in the basement of their mansions. In fact, most wealth held by these people isn't liquid; it's out working, invested, producing more wealth, and in the doing, making jobs, driving commerce - producing. A wealth tax would have a chilling effect on that, and would require a sudden withdrawal of investment capital, which would have an effect on California's economy that could range from bad to catastrophic. Many of the people holding this wealth would yank it - and many would just leave.
It's not as if enough productive people weren't already leaving the once-Golden state. This idea, should it come to fruition, would open the floodgates, leaving only a few coastal elites, the dependency class, and the few people caught in the middle who cannot, for one reason or another, just up and leave.
This isn't just a bad idea being pushed in California, either. Senator Elizabeth Warren (D-MA), who seems to think that the Constitution is something that just applies to other people, has been pushing a national wealth tax for years. Her ignorance-of-economics work spouse, Senator Bernie Sanders (I-VT), has also pushed wealth taxes. There's one thing saving Americans from being subjected to that particular stupidity, and that's Article I, Section 2, which states that taxes must be apportioned among the states "...according to their respective numbers." The 16th Amendment was the workaround to allow Washington to levy the income tax:
The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration.
A wealth tax at the federal level would require another such amendment, which in today's polarized political environment, would be as good as impossible; in this case, that's manifestly a good thing. Thus, the attempts to try it at the state level, and we should note, it's not only in California.
This idea belongs, as someone once said, in the scrap heap of history. But the left has never seen a tax scheme they wouldn't try, and California is, these days, a bastion of that same, economically illiterate, bad-idea-embracing left.
