Many progressives think of taxation the way teenage boys think about cologne: if some is good, more must be great. Serious people know better. One splash of cologne might be agreeable, but 10 reeks. And so it is with taxes: some are necessary to pay for public services, but government eventually reaches the point of diminishing returns — then passes it into repulsion.
That’s where California seems to be headed, thanks to the state’s broken ballot initiative system, which union bosses are manipulating to push innovators and job creators beyond their breaking points.
In 2012, California voters passed Proposition 30, increasing the marginal tax rate on high-income households up to 3 percent. This was sold as a temporary plug for budget holes during the Great Recession, but another initiative, Proposition 55, extended the taxes through 2030. A big win for progressives — until you see what happened next.
High earners responded rapidly by either leaving the state or reducing their taxable income. “These responses eroded 45.2 percent of state windfall tax revenues within the first year and 60.9 percent within 2 years,” economists Joshua Rauh and Ryan Shyu concluded in a 2024 paper.
But that history is not stopping the Service Employees International Union (SEIU), which represents hospital workers, from collecting signatures to put a measure on November’s ballot that would slap a one-time, 5 percent wealth tax on the state’s billionaires, with the revenue primarily dedicated to health care spending. This includes illiquid paper wealth, such as a founder’s share of a startup that may be years from going public.
The levy would apply retroactively to those who were California residents on Jan. 1, 2026. Because of that, even though there’s uncertainty about whether it will even qualify for the ballot, high-net-worth individuals looked in recent weeks to relocate their official residency to other states. Google cofounder Larry Page and Palantir cofounder Peter Thiel were reportedly among them.
Making a new tax retroactive opens the law up to all sorts of interesting legal challenges. If it withstands scrutiny, however, it’s a safe bet this won’t be a one-off. Funding ongoing expenses like health care with one-time taxes isn’t sustainable. Progressives will want to return to the well until they’ve sucked it dry.
Populists say good riddance. Who wants billionaires squatting in Malibu mansions that could be put to good use by ordinary, decent centimillionaires? Rep. Ro Khanna (D-California) responded sarcastically to the news about Thiel and Page: “I will miss them very much.”
Khanna should ask New Jersey officials how they felt in 2016 when a single billionaire named David Tepper blew a hole in the state budget by moving to Florida. Gov. Gavin Newsom (D), who like Khanna plans to run for president in 2028, opposes the wealth tax because he understands it would kill the Golden State’s golden goose.
California taxes are already sky high, and its tax base is extremely skewed towards the top. Over 40 percent of personal income tax revenue generally comes from 1 percent of taxpayers. That makes Sacramento especially vulnerable to small gyrations at the top.
Nor will bloodthirsty unions stop with billionaires. After the most affluent people put down roots in states with worse weather but better tax climates, these activists will target the next tier of “rich” people who don’t have as much flexibility to flee.
That would be a disaster for California’s economy, and its budget, and eventually, for the union jobs that would be funded by confiscating successful people’s money. Californians who care about the future of their state should reject this proposal, which is the public finance equivalent of dumping an entire bottle of cologne over your head: No matter your intentions, the results will stink.
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