Taxing a specific industry like AI is problematic as it invites lobbying and creates definitional ambiguity. A more effective and equitable approach is broad tax reform, such as eliminating the capital gains deduction, to create a fairer system for all income types, regardless of the source industry.

The wealthiest individuals don't have traditional paychecks. Instead, they hold appreciating assets like stock and take out loans against that wealth to fund their lifestyles. This avoids triggering capital gains or income taxes, a key reason proponents are pushing for a direct wealth tax in California to address this loophole.

Ben Horowitz warns against wealth taxes on unrealized gains by citing Norway's experience. The policy required founders to pay taxes on their private company's rising valuation with illiquid stock, leading to an exodus of entrepreneurs and effectively dismantling the local tech ecosystem.

Threatening to confiscate wealth from the most mobile people incentivizes them to leave. This capital flight has already begun in response to the proposal, proving such policies ultimately reduce the state's long-term tax revenue by driving away the very people they aim to tax.

While popular on the American left, direct wealth taxes have a poor track record in Europe. Countries like France, Sweden, Germany, and others discarded them because they were too complex to administer and ultimately failed to generate enough revenue to be worthwhile. This historical precedent presents a significant practical challenge for proposals like the one in California.

Instead of taxing unrealized gains, which forces asset sales and creates economic distortions, a more sensible approach is to tax the cash that wealthy individuals borrow against their assets. This targets actual liquidity and avoids punishing the long-term investment that builds the economy.

Billionaire wealth taxes are easily dodged by relocating. A more robust policy would tax capital gains based on the jurisdiction where the value was created, preventing billionaires from moving to a zero-tax state just before selling stock to avoid taxes.

A major flaw in the unrealized gains tax is that it punishes all investors for the actions of a few. A more targeted and less destructive approach would be to tax the loans that wealthy individuals take out against their stock portfolios, targeting the actual cash they use without harming the underlying assets.

Citing his firsthand experience with France's wealth tax, Manny Roman argues such policies often prove disastrous. The wealthy are mobile and can "vote with their feet" by moving to lower-tax jurisdictions like Belgium or Switzerland. This mobility undermines the intended tax base, rendering the policy ineffective.