California voters face a fateful choice this November. A ballot initiative, styled as a constitutional amendment, would impose a “one-time” 5% tax on the worldwide wealth of billionaires residing in the state as of Jan. 1, 2026.
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The proceeds are intended to subsidize health insurance and food stamps for the poor. Backed by a healthcare workers union and inspired by the University of California, Berkeley, economist Emmanuel Saez, the measure aims to raise roughly $100 billion from an estimated $2 trillion in billionaire wealth.
This proposal is not merely misguided policy — it is angry, punitive, and economically destructive. It treats California’s most successful investors and job creators as adversaries rather than partners in prosperity. Far from solving the state’s challenges, it will accelerate the out-migration of people and capital, stifle investment, and ultimately harm the very people it claims to help.
California’s tax code is riddled with inefficiencies, loopholes, and distortions that prevent the wealthy from contributing as they would under an optimized system. The real question is how to achieve that goal without wrecking the economy. The answer lies in broadening the tax base while lowering tax rates, not in retroactive confiscation.
Sound tax reform to enhance revenues could eliminate unjustified exemptions for 501(c)(3) organizations, which allow massive tax write-offs and tax-exempt earnings disproportionately used by the wealthy. The proposal could also impose annual taxes on increases in unrealized capital gains, close like-kind exchange loopholes, and treat inheritances as ordinary income. These steps should be paired with lower marginal tax rates, which would expand revenue, simplify the code, reduce avoidance, and promote genuine fairness.
Instead, proponents have chosen the worst possible approach: a targeted tax on wealth, leaving glaring inefficiencies untouched. Wealth and income are not substitutes, but complements. Taxing capital heavily reduces investment, which in turn depresses wages and employment. Capital and labor are friends, not enemies. A flat tax that treats both equally would serve California far better.
History provides clear warnings. During Ronald Reagan’s early political years, from 1967 to 1975, California sharply raised income, corporate, sales, capital gains, and property taxes. The state’s economy stagnated relative to the nation, despite population growth, while unemployment ticked higher. Then, during Gov. Jerry Brown’s first term and under Proposition 13, tax rates were cut, and limits were imposed. The result directly contradicted Reagan’s experience: California’s share of U.S. output surged from about 10.5 to 14%, property values soared, unemployment fell sharply relative to the nation, and prosperity returned.
Similar patterns appear elsewhere. States without income taxes consistently outperform high-tax states in personal income growth. When top tax rates rise, high earners report less income, reducing revenue from the top 1%. When rates fall — as they did in the 1920s under the Mellon-inspired tax cuts, the 1960s under President John F. Kennedy, and the 1980s under Reagan — revenues from the wealthy climb as economic activity expands. The data, reflected in long-term trends on top marginal rates versus revenues from high earners, confirms the reality of the Laffer Curve.
The proposed California tax compounds these problems. The retroactive design targets a tiny group of roughly 200 residents (including named individuals like Larry Ellison, Sergey Brin, Larry Page, and Mark Zuckerberg) and taxes worldwide wealth while “exempting” future billionaires. This selective punishment raises serious constitutional concerns, reminiscent of bills of attainder, which punish specific people for prior lawful behavior. It violates horizontal equity: Two otherwise identical billionaires, one on each shore of Lake Tahoe, would face wildly different burdens.
A smarter wealth tax, if one were truly needed, would apply to California-sited assets regardless of residence, begin above a $1 billion threshold without clawing back the first billion, and avoid retroactivity. The current proposal is persecution dressed as policy. Proponents tout it as a controlled “experiment,” yet genuine scientific experiments require voluntary participation, consent, and control groups. This is involuntary, targets specific subjects, and lacks any realistic hope of collecting more revenue. History offers no successful precedent for such a confiscatory one-time levy. Earlier state property taxes maxed out around 1.5% annually, provoking fierce resistance. Comprehensive wealth taxes have repeatedly failed or been abandoned.
The spending side is equally flawed. Funds dedicated to healthcare and food stamps will primarily enrich insurance companies while doing little to make life better for the poor. California already suffers the nation’s highest poverty rate (17.7%), elevated unemployment, alongside massive net out-migration of adjusted gross income. Employees, vendors, and communities dependent on wealthy residents will suffer collateral damage as capital and talent flee to Florida, Nevada, Texas, Tennessee, and other low-tax states.
The transfer theorem underscores why redistribution always fails to produce growth: Taking resources from high earners reduces their incentive to produce, and giving resources to lower earners creates alternative income sources that reduce overall work effort. Both substitution effects point in the same direction: lower total output. Income effects cancel out. An economy cannot be taxed into wealth any more than a poor person can spend their way into prosperity.
California’s challenges — housing costs, regulation, crime, and inequality — demand pro-growth solutions that expand the pie. Demonizing success and pitting citizens against one another may satisfy base emotions, but it solves nothing. Jealousy is not economics. Broad-based, low-rate taxation that rewards work, saving, and investment has lifted living standards across decades and continents. Punitive targeting of a visible minority has the opposite record.
NEWSOM REJECTS SCALED-BACK BILLIONAIRES TAX AS BALLOT FIGHT LOOMS
Voters should reject this initiative decisively. California needs policies that balance up, not down, bringing people together through opportunity rather than dividing them through envy. The state’s future depends on retaining and attracting investors, entrepreneurs, and innovators who have made California an economic powerhouse. A 5% wealth tax is not the path forward — it is a high-speed exit ramp to decline.
If implemented in November, expect slower growth, higher unemployment, increased welfare dependency, and fiscal shortfalls as other tax bases erode. The $100 billion windfall is illusory, yet the damage will be real and lasting. The choice is clear: Learn from California’s own tax history, or repeat the mistakes of the late 1960s and early 1970s. Prosperity comes from creation, not confiscation. Californians should choose the former.
Dr. Arthur B. Laffer (@realartlaffer) is the founder and chairman of Nashville-based Laffer Associates, an economic research and consulting firm. He was a member of President Ronald Reagan’s Economic Policy Advisory Board for both of his terms.
