California's proposed wealth tax faces opposition from the state's political machine not on principle, but because one union (SEIU-UHW) sponsored it alone without sharing the proceeds with other powerful unions. This infighting provides a temporary reprieve, but a future multi-union-backed bill is likely.
Related Insights
The wealth tax initiative is drafted to be highly punitive by including large Roth IRAs and negating the benefits of complex trust structures typically used for tax avoidance. This makes it extremely difficult for wealthy individuals to escape its reach if passed.
The proposed California "entrepreneur's tax" is not a one-time levy on billionaires. It's viewed as the first step toward an annual tax on paper wealth, with thresholds planned to drop to $25M. This would impact founders with illiquid equity post-Series B, forcing a mass exodus before an IPO.
A provision in the proposed California wealth tax calculates an individual's net worth not by the market value of their shares, but by multiplying their voting power by the company's total market cap. This disproportionately affects founders with super-voting stock, like those of Google.
A controversial feature of the proposed California billionaire tax is its retroactive application. The tax would affect anyone who was a billionaire resident at the start of the year, even if the law passes months later. This legal mechanism is designed to stop wealthy individuals from moving their assets out of state before the vote occurs.
California is on the verge of a massive tax revenue surge from upcoming IPOs of companies like SpaceX and OpenAI. However, a proposed wealth tax on illiquid assets is causing tech leaders to relocate, potentially costing the state the very economic boom it needs to balance its budget.
The SEIU's ballot initiative for a 5% billionaire wealth tax is likely unconstitutional. However, its real purpose may be to force wealthy individuals and politicians to publicly oppose it, creating identifiable political targets for the next election cycle.
The strongest legal challenge against California's proposed wealth tax is its retroactive application, a concept with unfavorable case law at the federal Supreme Court level. A smarter, future version of the tax would likely set a future start date, making it much harder to challenge legally.
A proposed wealth tax in California triggered a significant flight of capital and high-net-worth individuals, even without becoming law. The key factor was the failure of politicians to uniformly condemn the proposal, which was perceived as a threat to fundamental property rights, signaling a hostile business climate.
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.
A proposed California wealth tax is reportedly causing a pre-emptive capital flight. Crucially, the exodus includes individuals not directly targeted, who fear the law's scope could easily expand. This demonstrates how the mere threat of a policy can trigger significant economic consequences before it's even enacted.
