To counter billionaires moving to low-tax states just before cashing out, Newsom supports federal legislation that would require them to pay taxes to the state where they accumulated their wealth. This prevents individuals from exploiting state infrastructure and then avoiding their tax obligations upon exit.

The problem with a state-level asset tax is that wealthy individuals can simply move to another state. Proponents understand this, signaling that the ultimate goal is a federal asset tax. A national tax would be inescapable, as renouncing US citizenship comes with a prohibitive 45% exit tax on all assets.

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.

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.

A proposed wealth tax, intended to address inequality, may trigger capital flight as the wealthy relocate to avoid it. This could shrink the state's overall tax base, leaving less money for essential social programs like housing and food stamps. The policy may satisfy an emotional need to punish the rich but ultimately undermine the goal of helping the poor.

The mere proposal of a wealth tax, even before it passes, inflicts massive fiscal damage. Analysis by the Hoover Institution shows the threat alone led to high-earner exodus and faulty revenue projections, resulting in a net negative financial impact on the state.

The historical record shows that wealth taxes cause capital flight on such a large scale that they ultimately reduce a government's total tax revenue. For example, after France introduced one, 42,000 millionaires left with €200 billion, forcing the government to later abolish the tax.

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.

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.