On Tuesday, California voters rejected Proposition 40, known as the ‘billionaire tax’. The measure would’ve imposed a 5% retroactive tax on California residents whose net worth was valued at $1 billion or above. To make the tax legally possible, the proposal would’ve amended the state’s constitution and removed California’s 0.4% cap on “taxes on intangible personal property”. If this constitutional safeguard was removed, it would’ve allowed Sacramento to impose unlimited future taxes on wealth, no matter one’s income, without approval from voters.
The Billionaire’s tax was flawed from the start. Its proponents used outdated information and poor methodology. In projecting their potential tax base, they included billionaires who already left the state. On top of that, they included the value of billionaire’s directly held real estate, a direct contradiction to their proposal which explicitly excluded “real property directly held by the taxpayer” from being taxed.
All of this led to inflated revenue projections (to the tune of ~$70 billion) and a glaring misconception of reality: Taxpayers, especially billionaires, hate paying taxes. So much so, that just the threat of this tax exacerbated the exodus of billionaires from California, which caused the state to lose a projected $29 billion in revenue. That is billions of dollars not being realized, due to the attempt of passing this tax.
Proponents of wealth taxes in the US and across the world should look to California at this moment. The defeat of Proposition 40 is what happens when you push the most economically liberal taxpayers too far. Despite the damage the proposal already did, its defeat is a massive win for the taxpayers of California and a warning to those who want to pursue similar policies in other states and countries.