Democrats Divided Over California’s Wealth Tax!

Governor Gavin Newsom is siding with Republicans for once and opposing the more radical wing of the Democrat Party. What magical issue could be bringing this about? Well, California is considering one of the most aggressive tax proposals in the country – a 5 percent tax on the net worth of every billionaire living in the state. Would this save California from its budget crisis, as supporters champion, or are there other implications we need to consider?

California’s “Billionaire Tax Act”

In California, there is a new ballot initiative known as the “Billionaire Tax Act” that is looking to impose a wealth tax in our state. It is currently in the process of raising signatures to potentially be on the November ballot in this midterm election. The initiative was filed back in October by Jim Mangia, who is the President and CEO of St. John’s Community Health, and Suzanne Jimenez, who works for a major California-based healthcare labor union.[1]

The ballot proposal lays out the following terms: “Billionaires living in California on January 1, 2026, would have to pay a one-time state tax equal to 5 percent of their net worth. The tax would be due in 2027… Real estate, pensions, and retirement accounts would be excluded from the tax.”[2]

So, what is being proposed is a one-time tax of 5% on the total assets minus liabilities of anyone in California who had wealth of $1 billion or more at the start of this year. The actual net worth that billionaires would be taxed on would be valued at the end of the year, as of December 31, 2026.

What is a Wealth Tax?

Let’s back up and define our terms. A wealth tax is the idea that the government taxes certain individuals based on their total net worth – in other words, the value of everything they own – rather than just their income for a single year. Net worth is simply an accounting term. It’s calculated by taking all your assets and subtracting your liabilities.

So, first, you would add up the value of things like stocks and bonds, real estate, investment accounts, business ownership, cash, and savings. Then you subtract what you owe – mortgages, loans, or other debts. What you’re left with after that subtraction is your net worth. And under a wealth tax, that number is what determines whether you owe tax and how much you owe.[3]

How is this different from the income tax? An income tax looks at what you earned during a specific year. If you made $100,000 in salary, you’re taxed on that income. If you made $0, you generally wouldn’t owe income tax because there’s no income to tax. A wealth tax works completely differently. It doesn’t focus on what you earned that year, it looks at your total net worth. And it’s not limited to cash!

With an income tax, you’re taxed on realized income – meaning wages, business profits, or investments you actually sold. In other words, money that became income. With a wealth tax, the government looks at assets whether you’ve sold them or not. That includes stocks, businesses, real estate, and other investments. So, if your stock portfolio increases in value, but you never sell the shares, you could still owe taxes based on that higher valuation – even though you don’t technically have the money from that investment in your bank account.

This is one of the biggest differences: income tax is triggered by earning or realizing income. A wealth tax is triggered by owning assets above a certain threshold.

Support & Opposition

Why is this being proposed this year? The initiative is being pitched as a way to raise around $100 billion to help shore up state funding for health care, public education, and food assistance programs, especially in light of federal funding cuts. Most of the revenue, about 90%, is intended for health care services, with the rest going toward education and food programs.[4]

This is largely supported by public health advocates and union organizers since the funding would go toward their services. But there are some other big names backing the initiative – most notably, Congressman and former Presidential Candidate Bernie Sanders. This is no surprise, Sanders built his campaign off the idea of combating income inequality through taxing the rich, so of course this kind of initiative would bring him out to California to campaign for it. He gave a speech in Los Angeles just last week where he compared California’s highest earners to the oligarchs and monarchs of past centuries and said that America’s billionaire elite class “no longer sees itself as a part of American society.”[5]

At the same time, the ballot proposal has sparked intense political debate within the Democratic party, especially as some California billionaires are threatening or planning to move out of state if the initiative makes it to the ballot and is passed. One of the leading opponents to the wealth tax proposal is – in what may come as a surprise – our very own Governor, Gavin Newsom. He argues the tax could destabilize the state budget by driving wealthy residents and businesses out of California, therefore weakening the tax base.[6] 

Those fears are not unfounded. Several tech billionaires and investors, such as venture capitalist Peter Thiel, Google co-founders Larry Page & Sergey Brin, Meta CEO Mark Zuckerberg, and others, have been actively outspoken again the measure, even fundraising against it.[7] [8] They warn, similarly to Newsom, that it will encourage relocation out of the state and therefore hinder innovation – which California has become quite the hub for, especially in the Bay Area.

And, on top of that, even economists are warning that this type of tax would be disastrous for our state’s economy.[9] Mr. Wonderful himself – Kevin O’Leary from Shark Tank – has blasted the proposal as “bad management.”[10] So people who actually know about money and have actually made money for themselves and others are strongly opposed to this initiative.

Implications of a Wealth Tax

This is one of the rare issues where major Democrats, from Bernie Sanders to Gavin Newsom, are openly disagreeing, making it vital for us to look honestly at what a wealth tax would really mean. So, who is right? Would this tax raise billions of dollars for our healthcare system? Would it be disastrous for our economy? What would the true implications of a wealth tax be in our state?

The first implication is wealth migration. Billionaires themselves who would be affected by this have already vowed to move. Take for example, Mark Zuckerberg. He is currently in the process of buying a waterfront mansion in Miami, Florida, with plans to move in April of this spring. And he’s not the only one – South Florida real estate agents are reporting that in the new year they have seen a fresh wave of buyers, specifically coming from California.[11]

This makes sense, because if you have built a company or worked hard to earn massive wealth, then you aren’t going to want to just hand a percentage of it over to the state government simply because the government can’t manage its own money. This would be detrimental to our state’s economy.

California’s budget is already volatile because it depends heavily on capital gains taxes from wealthy residents.[12] If even a handful of billionaires relocate out of state, the long-term loss over the next several years could severely outweigh the one-time gain. While California might get a temporary boost for one year, in the years to come its revenues will decrease significantly. Wealth migration would not help the middle class or low-income earners, it would just shift the tax burden further onto them in the future.

The second implication then follows, and that is investment slowdown. Think of who are the people most likely and able to invest in new business and innovation in California? Venture capitalists! And who are venture capitalists? Rich people!

If you are a new business owner, you want investment in your company, which means you need to turn to people who have more money than you and are willing to pour their own funds into your business to see it success and later earn that money back. That’s the beauty of capitalism and of investment – the wealthy actually play a super important role in our economy and in the continued growth of business.

Startups in California raised roughly 62 percent of all U.S. venture capital dollars in 2025, underscoring our state’s dominance as a startup hub.[13] California is home to the most Fortune 500 companies of any state, with a whopping 58 companies as of fiscal year 2025.[14] These include major global names including Apple, Google, Meta, Chevron, Wells Fargo, Netflix, Visa, and PayPal.[15] And if that wasn’t enough, California hosts 33 of the world’s 50 leading artificial intelligence companies.[16] So clearly, it is not wrong or overblown to say that California is a major hub for business and innovation – BUT business and innovation relies on investment, and investment relies on – yes – billionaires.  

The third implication is forced asset liquidation. What do I mean by this?

The wealth tax disincentivizes wealthy people to hold their wealth, because they will just be taxed on it, and rather could force the wealthy to liquidate or sell some of their assets in order to be able to pay the 5% tax. Because remember, the tax includes investment holdings, which counts assets that people don’t have the realized gain or value from.

Let’s say someone living in California has $1.5 billion in total net worth, qualifying them for the new wealth tax, BUT most of that wealth is tied up in stock of a company they founded. Under a 5% one-time wealth tax, they would owe 5% of $1.5 billion, or $75 million. The problem is that it is unlikely that they have $75 million sitting in cash. Their wealth is likely mostly in company shares. So, to pay the tax, they would have to sell their stock. 

Doing so would reduce their ownership stake in their company, potentially affect company control, put downward pressure on the company’s stock price if the sale is large enough, and then trigger additional capital gains taxes on the shares sold. Does that sound attractive to a successful businessperson? Not at all! That not only wipes out a large share of their wealth, but it also has so many consequences on their business.

Most of the ultra-wealthy Californians who live here have their wealth concentrated in tech company stock, private startup equity, or real estate portfolios – which all are not liquid assets. So even though someone might be “worth” $1.5 billion on paper, they may not have tens of millions readily available in cash to pay the tax.

The fourth implication is the legal and constitutional questions that inevitably arise. Under the U.S. Constitution, states cannot unduly burden interstate commerce, and there must be sufficient connection between the taxpayer and the state. This means that if the wealth tax is being levied on wealth that was earned outside of California, assets that are located outside of the state, or on people who later move to a different state, then one could argue that the tax improperly reaches beyond California’s jurisdiction, thus violating the dormant commerce clause.[17] Then, there are questions at the state constitution level as well.

Our state constitution requires certain forms of tax uniformity. While a state can create progressive tax brackets, a wealth tax falls further into extremely narrow targeting and that the measure is punitive. And then there are retroactivity concerns, since the triggering conditions – all billionaires residing in California as of January 1, 2026 – are backward-looking before the measure would go into effect. This amounts to retroactive taxation and penalizes wealth accumulated before the measure was in place.

Final Thoughts

And really, there are many other implications we could look at here. But outside of all of these real outcomes and downsides of a wealth tax, the most important one is that it is simply wrong and unfair. It creates a system where you are punished because you have earned or accumulated wealth.

We should not, as a society, resent one another for success, for accomplishments, or even for wealth. We should instead incentivize more people around us to pursue success in ways that build up society and that promote what is good. We should all agree that companies like Google or Apple have contributed so much to not just our society in America, but on a global scale. Innovation drives forward civilization, and is the basis for making everyone’s lives better. The argument that billionaires steal all the wealth from the middle class is simply not true; the innovation their companies or their investments encourage have actually raised the wealth levels for all people in American society.

That doesn’t mean inequality isn’t a real issue, or that the system is perfect. But our government should not focus on taking money or wealth from people who have accumulated it. It should instead encourage everyone to use the freedoms they have been afforded in our great country to build the kind of life they want to live for themselves.  A free economy depends on the principle that individuals can strive, take risks, and build something extraordinary without fearing that success itself will become the liability. Instead of centering public policy around redistribution, government should focus on expanding opportunity: improving education, maintaining public safety, ensuring fair competition, and removing barriers so that more people can participate in growth.

So, for California, the goal should not be to pull down those at the top. It should be to raise up those at the bottom and in the middle by creating an environment where innovation, hard work, and entrepreneurship are rewarded. A wealth tax is a terrible idea, and as it moves through the legislative process, we must oppose it. Because ultimately, the American promise has never been that outcomes for all people are equal – it’s that opportunity is open. And if California wants to remain a place of innovation and possibility, that principle must remain at the center of our policies.

References:

[1] Jones, Paul. “California Ballot Initiative Proposes One-Time Billionaire Tax.” TaxNotes, October 28, 2025. https://www.taxnotes.com/featured-news/california-ballot-initiative-proposes-one-time-billionaire-tax/2025/10/27/7t747.

[2] Legislative Analyst’s Office, “New Tax on the Wealth of Billionaires. [Ballot],” December 11, 2025, https://lao.ca.gov/BallotAnalysis/Initiative/2025-024.

[3] Peterson Foundation. “What Is a Wealth Tax, and Should the United States Have One?,” February 20, 2025. https://www.pgpf.org/article/what-is-a-wealth-tax-and-should-the-united-states-have-one/.

[4] Valadez, Andrea. “Bernie Sanders Joins California Labor Groups’ Fight Against ‘Billionaire Class.’” CaloNews.com, February 20, 2026. https://www.calonews.com/news/california/bernie-sanders-joins-california-labor-groups-fight-against-billionaire-class/article_31bd5b5b-70b3-42e6-bdcb-b8938e82bd3e.html.

[5] Gambino, Lauren. “Bernie Sanders Rails Against Billionaire ‘Greed’ Amid California Tax Battle.” The Guardian, February 19, 2026. https://www.theguardian.com/us-news/2026/feb/19/bernie-sanders-rails-against-billionaire-greed-amid-california-tax-battle.

[6] Associate Press. “Bernie Sanders and Gavin Newsom Become Adversaries Over Push to Tax California Billionaires.” NBC Bay Area, February 19, 2026. https://www.nbcbayarea.com/news/local/california-billionaire-tax-proposal/4038543/.

[7] Newsham, Jack, and Madeline Berg. “Read the Letter Celebrity Lawyer Alex Spiro Wrote to Gavin Newsom, Warning That His Clients Will ‘permanently Relocate’ if California Wealth Tax Passes.” AOL, December 30, 2025. https://www.aol.com/articles/read-letter-celebrity-lawyer-alex-204649479.html.

[8] Altus, Kristen. “Mark Zuckerberg Becomes Latest California Billionaire to Relocate to Florida Amid Tax Concerns.” FOX 11 Los Angeles, February 10, 2026. https://www.foxla.com/news/mark-zuckerberg-relocates-california-florida-taxes.

[9] Parks, Kristine. “California’s ‘billionaire Tax’ Will Be ‘disastrous’ and Cause Wealthy to Flee, Economist Predicts.” Fox Business, February 6, 2026. https://www.foxbusiness.com/media/californias-billionaire-tax-disastrous-cause-wealthy-flee-economist-predicts.

[10] Penley, Taylor. “O’Leary Blasts California Wealth Tax as ‘Bad Management,’ Calls on Residents to ‘hire’ New Leaders.” Fox Business, February 19, 2026. https://www.foxbusiness.com/media/oleary-blasts-california-wealth-tax-bad-management-calls-residents-hire-new-leaders.

[11] Altus, “Mark Zuckerberg Becomes Latest California Billionaire to Relocate to Florida Amid Tax Concerns.”

[12] D’Agostino, John Osborn. “2024 California Budget Whiplash Caused by Volatile Taxes - CalMatters.” CalMatters, June 25, 2024. https://calmatters.org/explainers/california-budget-whiplash/.

[13] Primack, Dan. “California Easily Maintains Its Startup Crown.” Axios, January 26, 2026. https://www.axios.com/2026/01/26/california-startups-venture-capital.

[14] Governor of California Gavin Newsom. “California Leads the Nation — Again — With Most Fortune 500 Companies,” June 4, 2025. https://www.gov.ca.gov/2025/06/04/california-leads-the-nation-again-with-most-fortune-500-companies/.

[15] Burleigh, Emma. “California Beats Out Texas and New York as Home to the Most Fortune 500 Companies | Fortune.” Fortune, March 31, 2025. https://fortune.com/2024/06/04/fortune-500-california-most-companies/.

[16] “California Leads the Nation — Again — With Most Fortune 500 Companies.”

[17] Baker Botts LLC. “California 2026 Billionaire Tax Act,” December 12, 2025. https://www.bakerbotts.com/thought-leadership/publications/2025/december/california-2026-billionaire-tax-act#:~:text=If%20the%20initiative%20is%20approved,the%20tax%20between%20multiple%20jurisdictions.