Billionaire tax proposal sparks soul-searching for Californians

The heated debate over a proposed ballot measure to tax billionaires in California has sparked some soul-searching across the state.

Although the idea of ​​a one-time tax on more than 200 people has a long way to go before it gets on the ballot and must be passed by voters in November, the storm around it captures the spirit of anger and rage in central California. While Silicon Valley produces new millionaires, millions of the state’s residents lack health insurance and struggle with inflation.

Supporters of the proposed billionaire tax say it is one of several ways the state can provide health care to the most vulnerable. Opponents warn that this would eliminate the innovation that makes the state rich and lead to an exodus of wealthy entrepreneurs from the state.

Controversial measure It is already creating rifts among powerful Democrats who wield enormous influence in California. Progressive icon Sen. Bernie Sanders (I-Vt.) quickly endorsed the billionaire tax, while Gov. Gavin Newsom condemned it.

Wealthy residents of the Golden State say they’re tired of being targeted. They say their success has not only created unimaginable wealth but also jobs and better lives for Californians, but they still feel punished.

“California politics forces some of the richest parts of America together with its poorest, often separated only by a freeway,” said Thad Kousser, a professor of political science at UC San Diego. “The impulse to force the extremely wealthy to share their wealth is natural, but it is often challenged by the reality of our anti-tax traditions as well as modern concerns about stifling entrepreneurship or pushing job creation out of the state.”

The state budget in California already depends heavily on income taxes paid by the highest earners. Therefore, revenues tend to fluctuate, depend on capital gains from investments, bonuses to executives, and windfalls from new stock offerings, and are extremely difficult for the government to predict.

The tax proposal would cost the state’s wealthiest residents nearly $100 billion if a majority of voters support it on the November ballot.

Supporters say this revenue is needed to offset the massive federal funding cuts to health care that President Trump signed this summer. The California Budget and Policy Center estimates that unless a new funding source is found, as many as 3.4 million Californians could lose Medi-Cal coverage, rural hospitals could close and other health care services would be disrupted.

Some wealthy Californians who oppose the wealth tax have confronted Democratic politicians and labor unions on social media.

A growing number of companies and investors have decided it’s not worth the trouble to be in the state and are moving their companies and homes to other states with lower taxes and fewer regulations.

Jessie Powell, co-founder of Bay Area-based cryptocurrency exchange platform Kraken, wrote about X: “I promise you this will be the last straw.” “Billionaires will take all their spending, hobbies, philanthropies and businesses with them.”

Proponents of the proposed tax were given permission by California Secretary of State Shirley Weber to begin collecting signatures on December 26.

The proposal would impose a one-time tax of up to 5 percent on taxpayers and foundations with assets valued at more than $1 billion, such as businesses, arts and intellectual property. There are some exceptions, including property.

They can pay the tax in five years. 90 percent of the revenue will be spent on health programs and 10 percent on food aid and education programs.

To qualify for the November ballot, proponents of the proposal led by the Service Employees International Union-United Healthcare Workers West must collect the signatures of nearly 875,000 registered voters and submit them to county election officials by June 24.

The union, which represents more than 120,000 health care workers, patients and health care consumers, has committed to spending $14 million on the measure so far and plans to begin collecting signatures soon, said Suzanne Jimenez, the working group’s chief of staff.

Without new funding, he said the state faces “the collapse of our healthcare system in California.”

Rep. Ro Khanna (D-Fremont) spoke in support of the tax.

“This is a matter of values” said in x. “We believe billionaires could pay a modest wealth tax so working-class Californians could have Medicaid.”

The Trump administration did not respond to requests for comment.

The debate has become a lightning rod for national thought leaders looking to target California’s policies or the ultra-rich.

Sanders endorsed the billionaires tax proposal on Tuesday and said he plans to seek a nationwide version.

“This is a model that should be emulated across the country, which is why I will soon be imposing a national wealth tax on billionaires,” Sanders told X.

But there is no unanimous support for the proposal among Democrats.

Notably, Newsom has consistently opposed state-based wealth taxes. He reiterated his opposition when asked about the proposed billionaires tax in early December.

“You can’t isolate yourself from the other 49 people,” Newsom said at the New York Times DealBook Summit. “We’re in a competitive environment. People, especially people of that status, have this simple luxury; they already have two or three homes out of state. It’s a simple matter. You have to be pragmatic about it.”

Newsom has opposed state-based wealth taxes throughout his tenure.

In 2022, he opposed a ballot measure that would subsidize the electric vehicle market by increasing taxes on Californians who earn more than $2 million annually. The measure failed at the ballot box; Strategists on both sides of the issue said Newsom’s vocal opposition to the effort was a critical factor.

The following year, he opposed legislation from a fellow Democrat that would tax assets exceeding $50 million at a 1% annual rate and taxpayers with a net worth of more than $1 billion at a 1.5% annual rate. The bill was shelved without giving the parliament a chance to vote.

The latest effort is also opposed by a political action committee called “Stop the Sting,” founded by a $100,000 donation from venture capitalist and longtime Newsom ally Ron Conway. Conservative taxpayer rights groups such as the Howard Jarvis Taxpayers Assn. and Republicans in the state are expected to campaign against the proposal.

Given the potential for massive campaign spending, the ballot measure’s chances of passing in November are uncertain; Unlike statewide and other candidate races, there is no limit on the amount of money donors can contribute to support or oppose a ballot measure.

“Supporters of this proposed initiative to tax California billionaires will have their work cut out for them,” said UC San Diego’s Kousser. “Despite the state’s national recognition as ‘Scandinavia by the Sea,’ there is a strong anti-tax impulse among voters who often reject tax increases and are loathe to kill the state’s golden goose in tech entrepreneurship.”

Additionally, as Newsom considers a presidential run in 2028, political pundits are questioning how the governor will position himself; He opposes raising taxes, but he also doesn’t want to be blamed for large-scale health care cuts that would hurt the most vulnerable Californians.

“It wouldn’t be surprising if they considered the initiative. There’s enough money and enough pent-up anger on the left for this to be put to a vote,” said Dan Schnur, a professor of political communication who teaches at USC, Pepperdine and UC Berkeley.

“What happens once it’s accepted is anyone’s guess,” he said.

Lorena Gonzalez, president of the California Federation of Labor Unions, called Newsom’s position an “Achilles heel” that could upset primary voters like those in the Midwest who are focused on economic inequality, inflation, affordability and the widening wealth gap.

“I think it would be really difficult for him to take the position that we shouldn’t tax billionaires,” said Gonzalez, whose labor umbrella group will consider whether to approve the proposed tax next year.

California billionaires residing in the state as of Jan. 1 would be affected by the ballot measure if it passes. Prominent business leaders have announced moves that appear to be a strategy to avoid taxes by the end of 2025. On December 31, PayPal co-founder Peter Thiel announced that his firm was opening a new office in Miami, the same day venture capitalist David Sacks said he would open an office in Austin.

Brian Galle, a tax expert and law professor at UC Berkeley, said wealth taxes are not unprecedented in the United States, and versions exist in Switzerland and Spain.

In California, the tax offers an effective and practical way to pay for health care without disrupting the economy, he said.

“A 1% annual tax on billionaires for five years will not actually have a meaningful impact on their economic behavior,” Galle said. “We are financing a way to prevent a real economic disaster with something that has a very small impact.”

Palo Alto-based venture capitalist Chamath Palihapitiya disagrees. Billionaires whose wealth is often locked in illiquid company shares may go bankrupt, Palihapitiya warns wrote to x.

He stated that the tax would “kill entrepreneurship in California.”