Californians will face two competing tax measures this November. The first is the Billionaire Tax Act, a one-time 5% tax on the accumulated net worth of the state's wealthiest residents. Less well known is the Retirement and Personal Savings Protection Act, which would draw constitutional lines around what Sacramento can and cannot tax, prohibiting new liens on retirement accounts, personal savings and individually owned assets and prohibiting retroactive taxes.
Anyone who has even a little bit of money set aside (not just the California billionaires targeted by the estate tax) should understand what these two measures represent.
Start with the Billionaire Tax Act. The gap between what it promises and what it would offer is stark. Joshua Rauh of Stanford University has run the numbers with his colleagues at the Hoover Institution, and the results cast doubt on the prospect of any revenue increase.
Proponents say the tax would raise $100 billion. Rauh's team found that billionaires have already been voting with their feet: Larry Ellison left California in 2020, and six others, including Google co-founders Larry Page and Sergey Brin, left between the proposal's announcement and Dec. 31, 2025, the day before the liability took effect.
These deviations alone reduce the measure's supposed tax revenue by nearly 40% before a single dollar is collected. Once the migration patterns discovered in the academic literature are applied to quieter departures, expected revenues fall to just $40 billion.
Now, you have to take into account the normal state taxes that will no longer be collected from the departing billionaires. Rauh's team estimates that by reducing the existing tax base, the “net present value” of the measure is at least $25 billion. loss for California.
Then there is the problem of retroactivity. The proposal aims to tax billionaires based on their residency and conduct dating back to January 1, long before any votes were cast. People who believe they legally established residency elsewhere could have to fight California in court for years (at the expense of remaining taxpayers), based on details as arbitrary as where these billionaires kept their pets or were club members.
The “unique” formulation of the tax deserves equal skepticism. As Rauh points out, the measure includes constitutional authorization to lift California's tax limit on intangible personal property. Once that legal infrastructure is in place, future wealth taxes can be imposed at any rate, at any threshold, at any time. It is, in other words, a new permanent power for the State.
The Billionaire Tax Act is so erratic and its precedent so problematic that it practically begs Californians to pay attention to the second ballot measure. Every American's savings should be safe from such confiscation based on three clear principles.
First, fairness: When a worker sets aside after-tax income to invest in his or her retirement, the resulting balance is not untapped income. Treating these savings as a new tax base is taxing the same dollar twice.
Second, stability: a tax system that focuses on asset values rather than income streams is inherently volatile. A founder whose stock falls 40% in a recession still owes estate taxes on last year's higher valuation. An ordinary saver whose 401(k) plan is taxable would face the same absurdity.
Third, and most urgent, is California's own record. According to the State Nonpartisan Legislative Analyst's OfficeState spending is set to grow nearly 70% between 2019 and the next fiscal year, dramatically outpacing a significant revenue increase over the period. The result is a higher accumulated deficit 50 billion dollars in the next two yearsa hole entirely created by Sacramento itself, with no relation to Washington. Trusting politicians with that spending record to stop taxing billionaires is reckless and naive.
When the wealth tax inevitably fails to deliver, the state will look to the next available set of assets. Non-billionaires who stay after California's billionaires leave will be the likely targets, and their retirement savings could be the new tax base. like rauh wrote Earlier this month, in its ongoing exploration of the proposals, “While about 0.001% of California households are billionaires, about 62% have retirement accounts.”
If this prediction seems far-fetched given federal protections, or if you think billionaires will always be treated differently than regular savers who fill retirement accounts for a lifetime, consider what California already does with health savings accounts (HSAs).
Federal law treats HSA contributions and earnings as tax-exempt. But under California tax engineering, interest, dividends and capital gains are treated as ordinary income and affect approximately 4.5 million residents. These people are not billionaires or millionaires. Politicians simply decided that this was income that the state had the right to tax. Doing the same with 401(k)s and IRAs wouldn't require new principles, just the same will.
A billionaire wealth tax is the first step and puts the retirement savings of ordinary Californians at risk. HSA precedent suggests the threat is real. The Retirement and Personal Savings Protection Act would raise constitutional barriers against exactly that kind of expansion.
Rugy Veronica He is a senior fellow at the Mercatus Center at George Mason University. This article was produced in collaboration with Creators Syndicate.
