California Gov. Gavin Newsom has been trying to position himself as the leader of a listless Democratic Party ahead of his likely presidential run. He’s had some success energizing the base, but will the ambitious governor survive standing up to what could be his state’s greatest act of economic self-sabotage in recent history?
A health care workers’ union recently proposed a referendum that would impose a 5 percent wealth tax on billionaires living in California. Its supporters will soon begin collecting the nearly 875,000 signatures they need to get on the ballot in time for next year’s midterm election.
This would only be a one-time hit on the entirety of any given billionaire’s assets to fund health care spending, insists the Service Employees International Union-United Healthcare Workers West. The levy would hit those who were California residents on Jan. 1, 2026, based on their wealth as of Dec. 31, 2026. They would have five years to pay and better hope that their wealth, which can be fickle for paper billionaires, remains high enough to come up with the cash. No matter what their advocates promise, taxes are rarely ever one-off.
The group believes this could raise about $100 billion. But there’s reason to doubt those revenue projections, which have often been inaccurate in countries that imposed wealth taxes. There are about 255 billionaires in California now, and it’s unclear how many count as state residents.
Set aside the legal challenges that would inevitably follow and could prevent the tax from ever being levied. The most likely result is that billionaires would flee, so the state would also lose non-wealth-tax revenue. The risk of the measure passing might even cause some billionaires to leave, just in case. This initiative seems almost tailor-made to drive most Silicon Valley tech companies to Austin, Texas.
No doubt, Newsom understands the state probably wouldn’t recover from such an event, which is why he opposes the measure. His allies have already launched a political action committee to fight it. This sets him apart from Sen. Elizabeth Warren (D-Massachusetts), whose proposal for a 2 percent wealth tax was a centerpiece of her 2020 campaign.
Supporters of the initiative say that it will pursue all wealth, from art collections to closely-held companies. Income, which is relatively easy to measure, already requires massive bureaucracy to police. Including all kinds of exquisite property will lead to state workers spending countless hours guessing how much racehorses and fine wine collections are worth.
There are many other good reasons why only four countries in the Organization for Economic Cooperation and Development currently have wealth taxes, down from a dozen in the 1990s. A complex tax code means a corrupt one. Sweden’s wealth tax, which stood at 1.5 percent before its repeal in 2007, discriminated between different kinds of assets. Either California’s wealthy would lobby for their investments to get favorable treatment, or politicians would decide on a whim what they think should be left alone. Either approach would inevitably distort investment decisions and make the economy less productive.
There are plenty of policy failures in California, where high taxes and unaffordability have caused hundreds of thousands to flee the state. Yet Newsom, governor since 2019, is running on his record — which is why he doesn’t want to own the devastating consequences of a wealth tax. More interesting than his electoral calculation, however, is what policy and moral arguments he uses against the tax. His approach, and how voters respond, will speak volumes about the state of Democratic Party as it seeks its way out of the political wilderness.
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