If the goal of the California wealth tax is to reduce the state’s wealth, the ballot initiative’s proponents might be achieving their aims before the measure even appears on the ballot.
In a new paper making the case for the one-time 5 percent tax, Emmanuel Saez—a U.C. Berkeley economics professor and one of the initiative’s drafters—and his Berkeley colleague Gabriel Zucman—the godfather of the modern wealth-tax movement—insist that critics are exaggerating the risk that billionaires will leave the state and thereby decimate its tax base. Yet virtually every page of their paper offers a new reason for billionaires to flee.
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Saez, Zucman, and coauthor Jasper Boll frame California’s surging billionaire wealth—from an estimated $843 billion to $2.05 trillion in 2023—as an undesirable further concentration of riches at the top. They also note that California billionaire wealth has grown by 8.2 percent in real terms since 1982, much faster than overall wealth figures.
This analysis implies that 1982’s billionaires kept getting richer while doing nothing. In fact, the growth the paper tracks is overwhelmingly the creation of new fortunes, not the appreciation of old wealth. In 1982, Gordon Getty was the wealthiest Californian, while Nvidia’s Jensen Huang was washing dishes at Denny’s, nine-year-old Larry Page and Sergey Brin knew nothing of Google, and Mark Zuckerberg hadn’t even been born.
These men all went on to create enormous wealth—in part because there was no wealth tax to deter them. Had such a regime been in place when the AI wealth-creation surge began, the new tech almost certainly wouldn’t have been created in California—and maybe not at all.
The wealth tax’s architects—including Saez himself, one of the California proposal’s drafters—frequently insist that it’s just a one-time transfer, so it won’t affect any future decision-making. “[A] permanent response to a one-time tax does not make economic sense,” the paper asserts.
Yet, the paper also spends four pages analyzing and making the case for a permanent annual wealth tax. Perhaps the reason many billionaires are making permanent responses to a “one-time” tax is that its proponents keep saying they want to make it permanent.
Saez and company express confidence that the proposed tax will serve its purpose, even if it does drive many billionaires away. In their telling, the initiative’s residency date, which requires that anyone resident in the state before January 1 of this year be subject to the tax, provides virtually no chance for affected taxpayers to escape. They expect that billionaires like Zuckerberg, who moved earlier this year, will still be forced to pay out.
The date, which initiative supporters say was chosen “precisely to prevent such behavioral responses,” purportedly renders it “difficult if not impossible for billionaires to leave the state, i.e., meet of [sic] the stringent rules that the California tax law uses to determine that a taxpayer has effectively left the state.” Expect to see this quote as an exhibit in future litigation over the constitutionality of the tax’s residency requirements.
Legal precedent suggests that tax changes can be retroactive, within limits. When upholding such tax changes, courts have used words like “modest” to describe the retroactive policies they affirmed. The Supreme Court has twice struck down retroactive implementation of a “wholly new tax,” distinguishing this from modifying an existing tax.
The proposed tax is anything but modest. It is not apportioned for those who depart California in 2026—the full tax applies even if someone lives in California even just for the first month of the year—and even extends to wealth acquired or accumulated post-departure, which may have no connection to California whatsoever. Furthermore, if the law tries to restrict movement between states that otherwise would have occurred, it will implicate the constitutional right to travel. Proponents strengthen this impression when they say that the tax was designed to foreclose the possibility of moving to avoid it.
In reality, should voters approve the tax, investors and venture capitalists are likely to steer more of their investments toward startups based elsewhere that wouldn’t be swept up in any future (potentially permanent) California wealth tax. And the creators of tomorrow’s technology will increasingly look elsewhere rather than making a long-term bet on a tarnished Golden State. As a result, both California and America will be poorer—and the wealth tax and its advocates will be to blame.