California’s proposed wealth tax has reportedly already driven at least six billionaires out of state, and proponents haven’t even started collecting signatures yet. The preemptive exodus, and the prospect of significantly more departures later, illustrates the initiative’s fiscal risk: not only revenue under the new tax, but also sustained collections from California’s existing taxes, hinge on the decisions of a small number of highly mobile individuals who are being incentivized to leave.
As the nonpartisan Legislative Analyst’s Office noted in its evaluation of the initiative, the new tax would yield a temporary state revenue increase from the wealth tax but a “likely ongoing decrease in state income tax revenues.” A half-dozen billionaires have already left. Many more might depart if the initiative appears to have a good shot at passage, and still more would leave if it’s ratified by voters. Even with passage, moreover, the tax’s prospects are uncertain given the inevitable legal challenges. California could lose a significant share of its billionaires – and many other high earners with them – over a tax that might never generate a dime.
California’s tax system is uniquely susceptible to this risk because it relies so heavily on high earners. If billionaires leave and if they take other high earners with them, California’s top-heavy tax system would take a substantial hit. Filers with more than $1 million in annual income were responsible for around 40 percent of California’s personal income tax collections by 2019, and those with $5 million or more in income – fewer than 10,500 filers – paid 20 percent of the income tax. At a rough estimate, the state’s 200 wealthiest households, those potentially subject to the wealth tax, likely remit $5 billion or more each year in income taxes on their own.
If billionaires leave California to avoid the wealth tax, they won’t just uproot themselves. For each billionaire departure, many other high-paying jobs will follow, as cities like Austin, Phoenix, and Tampa Bay become magnets for departing tech executives, employees, and investors.
High earners tend to cluster around growing businesses and venture capitalists. If senior executives and major investors depart, they will take offices, enterprises, and, over time, high-paid employees with them. And in a state where the loss of 10,500 people would wipe out $25 billion just in personal income tax collections (based on current revenue estimates), to say nothing of revenue from other taxes, it wouldn’t take that many departures to create an ongoing budget crisis. Losing even a fraction of the state’s high earners creates a budget hole that the wealth tax cannot fill, and isn’t even designed to fill.
The proposed initiative is a one-time tax with earmarked revenue. Even if it were not tied up in litigation, its collections would not offset reduced revenue for education and other core government services. And whereas the initiative creates a one-time wealth tax, an exodus of jobs and high earners (including not just billionaires but also many other highly paid employees, particularly in the tech industry) yields lower revenue year after year. That puts pressure on school budgets (since about 40 percent of personal income tax revenue goes to education) and all other state government functions.
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Editorial: LAO report underscores California’s long-term budget mess State and feds fail to protect Americans from foreign scammers Insurance company subsidies are no prescription for lowering healthcare costs California’s hidden jobs tax was no accident Brian Jones: State of the state is not what we’re told, or what it should be Under the initiative, wealth tax liability is based on residency as of January 1, 2026. However, no one is confident that this retroactive and non-proportional “snapshot” residency requirement will withstand legal scrutiny. That includes the initiative’s drafters, who included language asking courts to substitute later dates if legally necessary to preserve the tax. Billionaires could move later in the year – even after Election Day – in the expectation that the courts would revise the residency requirement.Under the wealth tax proposal, California is at risk of losing something it can’t easily recover: not just a specific set of billionaires who may never return, but the state’s seeming inevitability as the hub for new tech investment and innovation.
Other cities and states have long chipped away at Silicon Valley’s edge, but California’s fortunes rose in tandem with the rise of artificial intelligence. If some of the tech industry’s leading figures depart to avoid a one-time wealth tax that may never even go into effect, other states’ technology hubs – the country’s Silicon Hills, Slopes, and Prairies – will be the ballot measure’s true winners, and California’s economy and state budget its losers.
Jared Walczak is a visiting fellow for the California Tax Foundation and a senior fellow with the Washington, D.C.-based Tax Foundation, where he previously spent five years as vice president of state projects. Walczak, a nationally recognized expert in tax policy, also operates Walczak Policy Consulting.
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