Author: Janet Novack, Forbes
Translation: Lemin, Forbes
Original Title: "California's 'Billionaire Tax' Causes Uproar, Billionaires Threaten to Vote with Their Feet"
This innovative initiative aims to levy more taxes on the state's ultra-wealthy—some believe these billionaires have not borne a tax burden commensurate with their wealth. The proposal may be put to a vote by California voters in November.
Critics point out that the proposal to impose a one-time 5% tax on the assets of California billionaires could jeopardize the economic recovery of the San Francisco Bay Area driven by the artificial intelligence industry. Image credit: STEVE PROEHL/GETTY IMAGES
The California wealth tax proposal has angered a number of the state's billionaires, who have even threatened to move their families out (some have already taken action). However, although the proposal is novel and well-considered, it still has a long way to go before it becomes law and is implemented. The proposal is being advanced through a voter referendum; if it gathers enough signatures, it will be put to a vote by the often unpredictable California electorate in November. California voters have historically been willing to vote in favor of measures that increase taxes on the rich, yet in 1978, they also voted for Proposition 13, which placed strict limits on the state's property taxes.
Currently, the proposal faces unanimous opposition from the business community, and California Governor Gavin Newsom has also expressed disagreement. Critics say it could trigger a mass exodus of tech entrepreneurs (and the companies they found and the jobs they create) from California, leading to a long-term decline in the state's income tax revenue. However, the drafters of the proposal have refuted this view.
The "2026 Billionaire Tax Act" proposes a one-time 5% "consumption tax" on the assets of California billionaires. The four scholars involved in drafting the proposal stated that the act would levy approximately $100 billion in taxes from over 200 billionaires in California (the four stated this estimate is based on Forbes' billionaire valuations).
These funds will enter the California treasury between 2027 and 2031, flowing into a dedicated fund primarily to fill the funding gap for the federal Medicaid program. The tax has a very wide scope, covering equity in privately held companies, publicly traded stocks, personal assets valued over $5 million, and retirement accounts with balances exceeding $10 million. The only major exemption is for real estate held directly through a revocable trust—a provision set up partly to avoid conflict with Proposition 13. Under Proposition 13, the property tax rate is capped at 1% of the assessed value, and the annual assessment increase cannot exceed 2%, unless the property changes hands. However, real estate held through partnerships or included in a company's asset value will still be subject to this tax.
In late November last year, the proponents submitted a 32-page proposal description to the California Attorney General's office. The document states that billionaires can choose to pay this one-time tax in installments over 5 years, but interest will be charged. For billionaires who primarily hold non-publicly traded, illiquid assets (such as equity in private startups), they can enter into an "elective deferred payment account" agreement with the state government, delaying tax payment until the equity is sold or cash is extracted from the assets.
This proposal was initiated by the Service Employees International Union-United Healthcare Workers West (SEIU-UHW) and first announced last October. Its wording is designed to explicitly prevent billionaires from avoiding taxes by moving away or manipulating asset valuations. Although the tax base is the net worth of billionaires as of December 31, 2026, the determination of tax residency is set as of January 1, 2026.
It appears that some billionaires have already attempted to relocate before the end of 2025, the most notable being Google co-founder and Alphabet's largest individual shareholder, Larry Page. Last December, Page spent $173.5 million to purchase two properties in Miami, and his affiliated companies also moved out of California around the same time, just before the critical deadline. However, completely severing California tax residency is a lengthy process, and the California tax authorities have traditionally taken a hard line on such issues, sometimes successfully dismissing tax avoidance claims based on hasty moves or claims of non-residency.
Last September, the California Office of Tax Appeals ruled that Canadian comedian Russell Peters owed back taxes for 2012 to 2014, determining that he was a California tax resident during that period. Although Peters had a home, an apartment, and a driver's license in Nevada (which has no state income tax), registered three companies there, and filed California taxes as a non-resident using a Canadian address, the court found that Peters also owned property in California, his daughter from a previous marriage resided in California, and credit card bills showed he spent more days in California than in any other region.
The court cited the 2021 Bracamonte case precedent in its ruling—in that case, a couple attempted to move to Nevada to avoid taxes on the sale of a business worth over $17 million and ultimately lost. This precedent established a broad standard requiring courts to consider all evidence, including the taxpayer's in-state registrations, personal and professional connections, actual time spent residing, and property holdings, to determine tax residency.
"Determining California tax residency is entirely a subjective matter," said San Francisco tax attorney Shail P. Shah. Shah, whose practice focuses partly on tax residency disputes, wrote an article after the Bracamonte ruling with a clever title—"Social Distancing From California."
Shah pointed out that these rules essentially require a judge to determine whether a California taxpayer truly intends to leave California permanently and sever all ties with the state. For tech billionaires who have spent decades in Silicon Valley and accumulated vast wealth there, proving this is no easy task. "If you are a billionaire with a huge social network in California, frequently play golf at Pebble Beach, and grew up in Palo Alto, it's hard to argue that you don't intend to return to California."
However, Jon D. Feldhammer, a tax attorney and partner at Baker Botts LLP's San Francisco office, said several billionaires have consulted him about the bill and are seriously considering leaving California, completely cutting ties with the "Golden State," and even planning to move their businesses with them.
But isn't it too late to act now? Shouldn't they have taken measures last year?
Feldhammer responded that not necessarily. Last December, Feldhammer and his team published an analysis listing eight potential challenges to the bill—based on federal constitutional grounds, state constitutional grounds, or both. One involves the retroactivity of the bill: if voters pass the tax in November, its scope will be retroactive to tax residents living in California on January 1 of this year. Although the U.S. Supreme Court has previously allowed amendments to federal income and estate tax rules to be retroactive to the beginning of the year (for example, Trump's "Big and Beautiful Act" passed in July 2025 contained several retroactive provisions), Feldhammer noted that the current Supreme Court's stance is nuanced and may not endorse the retroactive effect of a new tax. His advice to billionaires is: "To preserve the argument against the bill's retroactivity, it's best to complete the move before the vote, and the sooner, the better."
Beyond constitutional controversies, the implementation of the bill could also face numerous obstacles.
To this end, the proposal includes many preventive clauses designed to prevent billionaires from undervaluing or hiding assets. For assets of privately held companies, the default valuation method is "book value + annual book profit × 7.5," and the valuation result cannot be lower than the company's valuation in its last round of financing. If the taxpayer believes this valuation is too high, they can submit an asset appraisal report and other evidence for review. For personal assets like art and jewelry, the valuation cannot be lower than their insured value. Donations to charitable organizations can be deducted from taxable assets, but the taxpayer must sign a legally binding donation agreement by October 15, 2025. Additionally, real estate purchased in 2026 and held directly, if deemed for tax avoidance purposes, will not be exempt.
Of course, the bill still has a long way to go before it becomes law.
PricewaterhouseCoopers noted in an analysis report that before being submitted to voters, the proposal must first be certified by the state government and gather 875,000 valid voter signatures by the end of June this year. Even if the proposal narrowly passes, it will inevitably face full-scale legal challenges from those subject to the tax, and the drafters have attempted to preemptively resolve or directly dismiss potential lawsuit grounds through clause design. In an "expert report" on the proposal released last December, the four scholars (three law professors and Emmanuel Saez, an economist and director of the Stone Center on Wealth and Income Inequality at UC Berkeley) emphasized that the general prohibition on wealth taxes in the U.S. Constitution only applies at the federal level, and that states' "power to levy wealth and property taxes on residents has long been recognized, provided they comply with due process and other constitutional protections." The proposal also explicitly proposes amending the California State Constitution to avoid state constitutional legal challenges.
The four scholars dismiss the argument that "a wealth tax will cause billionaires to leave, leading to a long-term reduction in state income tax revenue." David Gamage, a tax law professor at the University of Missouri and one of the proposal's drafters, said: "This is alarmist. There's a lot of noise, but little factual basis."
However, California's non-partisan Legislative Analyst's Office (LAO) holds a different view. In a brief assessment report released last December, the office stated that the bill could lead to California losing hundreds of millions of dollars or more in personal income tax revenue annually. Feldhammer said this estimate might still be too conservative. If the billionaires consulting him actually move their businesses out of California, the state would lose not only the billionaires' income taxes but also the personal income taxes paid by employees and corporate income tax revenue.
California's personal income tax rate is already the highest in the nation at 13.3%, which includes an additional 1% tax on income over $1 million passed by voters in 2004. In 2012, California voters approved adding three higher tax brackets for individuals with taxable income over $250,000 or couples with joint taxable income over $500,000; this originally temporary policy was later extended until 2030. In analyzing another referendum proposal to make the high rates permanent, the California Legislative Analyst's Office pointed out that currently, half of California's personal income tax revenue comes from the wealthiest 2% of the population.
But the scholars involved in drafting the proposal cited a recent paper by Saez and other economists—which studied the tax payments of individuals on the Forbes list of American billionaires—pointing out that billionaires' tax contributions account for only about 2.5% of California's total personal income tax revenue. The scholars explained that, unlike ordinary members of the top 2% (such as high-income executives, doctors, lawyers, small business owners, etc.), super-wealthy individuals have more means to shield their wealth from being classified as taxable income. For example, they can maintain a luxurious lifestyle by taking out loans against their stock rather than selling it and triggering capital gains taxes. The four scholars wrote in the proposal description: "The billionaire tax will directly correct this inequity by taxing all wealth, regardless of whether it has been converted into taxable income."
San Francisco tax attorney Shah said the real concern is that the controversy over this billionaire tax proposal—although he believes it is ultimately unlikely to pass—could send the wrong signal and hinder the San Francisco Bay Area's recovery from the pandemic-induced recession. "Right now, the booming AI industry is providing strong momentum for recovery in the Bay Area, but everyone is worried that such tax increases will slow that momentum. There's a limit to everything; you can go too far."
"The negative impact has already occurred and is continuing to ferment," warned Feldhammer. He gave an example: suppose a hot startup founder becomes a paper billionaire by the end of 2026. But if the company's valuation plummets afterwards and the founder hasn't had time to cash out, he would still be burdened with taxes on this non-existent wealth. Furthermore, even if the company's valuation remains stable, the founder would eventually have to sell stock to pay the wealth tax. The proceeds from the stock sale would also be subject to a combined 37.1% federal and California capital gains tax, meaning they would have to sell even more stock to pay the income tax, resulting in a continuous dilution of their ownership stake.
Objectively speaking, California is not alone in the race to "tax the rich"; it has company in angering billionaires. New York City's combined state and city personal income tax rate is the highest in the nation, adding a top city rate of 3.9% to the state's top rate of 10.9%. The new mayor, Zohran Mamdani, promised during his campaign to increase the city rate on income over $1 million to 5.9%, bringing the combined rate to 16.8%. Although numerous billionaires spent heavily to oppose his campaign, Mamdani was successfully elected last November. This outcome undoubtedly worries the California camp全力阻击 (working hard to block) the billionaire tax proposal.
