Will California's billionaire tax boost or hinder the state?

Tom Steyer and the California Governor Race

One of the leading candidates for California governor is Tom Steyer, a self-described philanthropist, political activist, and environmental advocate. While he emphasizes making California more affordable, his wealth—estimated at $2.4 billion from his career as a Wall Street investor and hedge fund manager—has sparked skepticism among voters.

With the primary election just weeks away and early voting already underway, Californians are set to decide whether Steyer can succeed Governor Gavin Newsom. Alongside this race, voters will also consider the California Billionaire Tax Act, which aims to impose a one-time 5% tax on individuals or married couples with assets exceeding $1 billion.

Steyer has supported the idea of higher taxes for the ultra-wealthy, as noted in a Substack post. However, he criticized the proposal as “a temporary fix to a permanent, structural problem.” The proposed tax would apply to anyone residing in California as of January 1, 2026.

Concerns About the Billionaire Wealth Tax

Chester Spatt, professor of finance at Carnegie Mellon University and former chief economist at the U.S. Securities and Exchange Commission, raised concerns about the design of the proposal. He argued that the tax could push people out of California due to the possibility of it being enacted.

Andrew Wilford of the National Taxpayers Union Foundation called the proposal “an unprecedented type of tax,” noting that no state has ever implemented something similar before. A wealth tax is typically imposed on a person’s total net worth, including homes, businesses, and stocks, minus any liabilities.

The proposal was introduced in response to the Trump administration’s One Big, Beautiful Bill legislation, which aimed to reform medical provider tax schemes. Wilford explained that states inflate Medicaid spending to receive a larger federal match, resulting in higher tax revenue for the states but ultimately shifting the burden to federal taxpayers.

Labor Unions and the Ballot Initiative

Service Employees International Union-United Healthcare Workers West (SEIU-UHW), a labor union representing healthcare workers in California, launched a ballot initiative ahead of the November 2026 election. They submitted 1.55 million signatures to qualify for the ballot, arguing that billionaires can shield their wealth from taxation while others pay taxes on earned income.

The initiative highlights that billionaires’ assets, such as stocks and real estate, grow in value without being taxed unless sold. SEIU-UHW previously endorsed Massachusetts Senator Elizabeth Warren’s Ultra-Millionaire Tax Act and Vermont Senator Bernie Sanders’ Medicare-for-All funding proposals, though neither advanced in Congress.

Migration and Economic Impact

Wilford argued that the retroactive nature of the billionaire tax is “almost certainly unconstitutional.” He pointed out that several California billionaires have already left, reducing potential tax revenue. A study found that public departures of certain billionaires could result in $24.7 billion less in tax revenue over time.

High-net-worth individuals are moving out of California, not always as publicly as figures like Larry Page or Peter Thiel. Open Secrets reported that Silicon Valley executives, including Google co-founder Sergey Brin, have raised over $120 million to oppose the tax initiative.

Wilford noted that the 5% tax rate is high compared to European countries, with Spain’s maximum at 3.5%. California loses a resident every 2 minutes and 37 seconds, according to IRS data, resulting in about $4 billion in lost state and local revenue.

California’s Tax Policies and Competitiveness

Spatt highlighted that California taxes the wealthy more than any other state, with a top income tax rate of 14.4%. He argued that the state’s high taxes make it less competitive, especially as tech entrepreneurs question the need to remain in Silicon Valley.

California’s spending on projects like railroads that haven’t been built further complicates its financial situation. Spatt said the billionaire tax doesn’t address the state’s spending problems, as it’s meant to fund annual Medicaid shortfalls with a one-time tax.

National Implications of the Wealth Tax

The proposal has raised questions about California’s credibility. The Biden administration also considered a wealth tax in its 2025 budget, aiming to impose a 25% tax on households earning $100 million or more. However, Spatt noted that it’s easier for high earners to move out of California than to avoid a federal tax.

Jeff Burton, a Republican strategist, emphasized that California often sets trends for the nation. If the billionaire tax passes, it could signal to progressives that similar measures are possible in other states.

Burton added, “It’s going to end up being a fight nationally that occurs in California first.”