The proposed California wealth tax that has some of the state’s billionaires fuming, threatening to move (and even taking steps to do so), is an elaborately crafted and novel plan that’s a long way from becoming law, let alone being enforced. It is designed as a ballot initiative, which, if it gets enough signatures, could be put in November before mercurial California voters, who have famously approved prior tax-the-rich measures, as well as, back in 1978, Proposition 13, strictly limiting the state’s real estate taxes.
Already, the scheme faces opposition from not only the business community, but also California Governor Gavin Newsom. Critics claim it could spark an exodus of tech entrepreneurs (and their businesses and jobs) from the state, leading to a long term decline in income tax revenues–claims the drafters reject.
The “2026 Billionaire Tax Act” would impose a one-time 5% “excise” tax on the net worth of the state’s billionaires. Four academics who helped craft the proposal have estimated (based, they say, on Forbes’ billionaire valuations), that it would raise about $100 billion from 200-plus California billionaires, with that money flowing into the state’s coffers between 2027 and 2031 and going to a dedicated fund, primarily to make up for federal Medicaid cuts. The tax base is broad, covering private businesses, public stock, personal assets above $5 million and retirement accounts above $10 million. The big exception is for real estate held directly or through a revocable trust–a provision included in part to avoid running afoul of Proposition 13, which limits taxes on real estate to 1% of assessed value a year, while also capping assessment increases at 2% a year, except when a property is sold. But real estate that’s held in a partnership or is part of a business’ value could get hit.
According to a 32-page description of the initiative filed in late November with the state attorney general, the rich could elect to pay the one-time levy over five years, with interest. Those who have primarily non-publicly traded, illiquid assets (say, ownership in a private startup) could set up an “Optional Deferral Account” contract with the state deferring taxes until their stake is sold or they withdraw cash from their holdings.
The proposal, sponsored by the Service Employees International Union–United Healthcare Workers West, was first announced in October and was explicitly written to prevent billionaires from moving to avoid it or from playing valuation games. While the levy is based on a billionaire’s net worth as of December 31, 2026, tax residency is determined as of January 1, 2026.
Some billionaires did apparently try to move before the end of 2025. Notably, Larry Page the cofounder of Google and the largest individual shareholder in Google parent Alphabet, spent $173.5 million on two Miami properties in December as companies associated with him moved out of the state, just under the wire. But ditching California can be a lengthy process and the state’s tax agency has been aggressive and sometimes successful in challenging hasty moves or claims of non-residency.
In September, the California Office of Tax Appeals found Canadian comedian Russell Peters liable for 2012, 2o13 and 2014 back taxes as a resident, even though he had a home, condo and driver’s license in state-income-tax-free Nevada, had three Nevada corporations, and filed in California as a non-resident, listing a Canadian address. The court noted Peters owned homes in California, had joint custody of a daughter living in California with his (now former) wife, and, based on his credit card bills, had spent more days in the Golden State than anywhere else. The court referred back to its 2021 precedent setting Bracamonte decision in which it ruled against a couple who tried to move to Nevada before selling their business for more than $17 million. In that case, the court laid out an expansive test saying that all the evidence, including state registrations, personal and professional associations and physical presence and property must be considered.
“The California residency tax rules are purely subjective,’’ says San Francisco tax lawyer Shail P. Shah, who spends a large part of his practice on residency issues and wrote an article after Bracamonte cleverly titled Social Distancing From California. The rules essentially require a judge to consider whether a California taxpayer really intended to permanently leave and cut ties to the state, which can be difficult for tech billionaires who spent decades building their fortunes in Silicon Valley to establish, says Shah. “If you’re a billionaire and you’re part of a social network here and you golf at Pebble Beach and you grew up in Palo Alto, it’s a hard argument to say you have no intent to return to California.”
But Jon D. Feldhammer, a tax lawyer and partner-in-charge of Baker Botts’ San Francisco office, says he’s now discussing the law with billionaires who are seriously considering leaving California and permanently cutting their ties to the Golden State, including taking their businesses with them.
Wait, isn’t it too late? Didn’t they have to act last year?
Not necessarily, Feldhammer responds. Among eight possible challenges to the law on either federal or state constitutional grounds (or both) that Feldhammer and his colleagues outlined in a December thought piece, is a challenge to the proposal’s retroactivity– if voters approve the tax in November, it will reach back to billionaires who lived in the state as of this past January 1. While the U.S. Supreme Court has allowed federal income and estate tax changes to be retroactive to the start of a year (Trump’s One Big Beautiful Bill Act passed in July of 2025 had lots of those), there are hints the current court might not allow retroactivity for a new tax, Feldhammer says. The advice he’s offering billionaires: “The best way to preserve the retroactivity argument is to move before the vote, but ideally, sooner rather than later.”
In addition to the constitutional fights, there could be big challenges in enforcing the law, and so the proposal includes all sorts of gotchas designed to head off billionaires’ efforts to undervalue or exclude assets. Private businesses would be valued, by default, at their book value plus 7.5 times their annual book profits, but not less than the valuation they were assigned in their last funding round. (If taxpayers thought those values were too high, they could submit appraisals and other evidence to rebut them.) Personal assets–say, art and jewels–could be valued at no less than their insured value. Money pledged to charity wouldn’t be counted, but the taxpayer would have had to have made a legally binding pledge before October 15th, 2025. Any directly held real estate acquired in 2026 would not be exempt if it was purchased to evade the wealth tax.
Of course the tax is a long way from becoming law. Before it’s even put to the voters, it needs to be certified by the state and garner 875,000 valid voter signatures by late June, PWC points out in an analysis. If it were to be passed, the tax would face spare-no-expense legal challenges from its intended targets, some of which the drafters have attempted to preempt or dismiss outright. In their December “expert report” on the proposal, the four professors (three law profs and University of California-Berkeley economist Emmanuel Saez, director of a center on wealth and inequality), note that the U.S. Constitution’s general prohibition on wealth taxes applies to federal taxes, not taxes by the states, which “have long-standing power to tax their residents’ wealth and property, so long as basic due-process rules and other constitutional protections are respected.” The initiative explicitly amends the state constitution in part to head off challenges on state constitutional grounds.
The four academics are dismissive of the argument that the wealth tax will cause billionaires to flee the state, costing income tax revenue to decline in the long term. “It’s all noise, all talk and very little reality,’’ says one of the four, David Gamage, a University of Missouri tax law professor.
California’s nonpartisan Legislative Analyst Office (LAO) isn’t so sure. In a brief December overview, it concluded the measure would likely cost the state hundreds of millions or more in state personal income tax revenue every year. But that could be understating the loss, Feldhammer argues, if the billionaires he’s counseling take their businesses with them, leading to a loss of individual income taxes paid by their employees, as well as of corporate tax revenues.
California already has the highest state individual income tax rate in the nation, at 13.3%, including a 1% surcharge on income over $1 million that was passed by voters in 2004. In 2012, California voters temporarily created three new, higher brackets on taxable income over $250,000 for an individual or $500,000 for a couple, and later extended those hikes until 2030. According to LAO’s analysis of yet another ballot initiative that proposes to make those higher rates permanent, California now gets half its personal income tax revenue from the wealthiest 2% of its population.
But the professors, extrapolating from a recent paper by Saez and other economists on taxes paid by members of the Forbes list of the 400 richest Americans, estimate that billionaires account for only about 2.5% of California personal income tax revenues. That’s because, unlike ordinary members of the top 2%—high income executives, doctors, lawyers, small business owners and the like–the super-wealthy have more opportunities to avoid recognizing taxable income. They can, for example, borrow against their stock to fund their lifestyles rather than selling it and realizing taxable capital gains. “The billionaire tax directly remedies this injustice by taxing all wealth, whether this wealth has been realized as income or not,’’ the four professors write in their brief for the initiative.
San Francisco tax lawyer Shah says the real fear is that the specter of the billionaire tax–which he doubts will pass–could send the wrong message, jeopardizing the recent comeback of the San Francisco Bay area from its Covid-era decline. ”There’s this great tailwind that AI has completely revitalized the San Francisco area and everyone is worried a tax hike like this is going to slow the momentum down,’’ he says. “There’s a point where too much is too much.”
“There’s already a lot of damage being done and it’s just getting worse,’’ warns Feldhammer. He points out that the founder of a hot startup could be a billionaire on paper at the end of 2026, and if the business’ value later crashes before he can cash out, will still owe taxes on that phantom wealth. Moreover, even if a company holds its value, founders will have to ultimately sell shares to pay the wealth tax, and will then owe a combined 37.1% federal and California capital gains tax on their sale proceeds, meaning they’ll have to sell even more shares to pay income taxes, reducing their stake.
To be fair, California does have some worthy competition in the tax-the-rich race and company when it comes to incurring the wrath of billionaires. New York City’s combined state and city personal income tax rate is the highest in the nation, with a 3.9% top city rate added to the top 10.9% state rate. Zohran Mamdani, New York City’s newly inaugurated mayor, ran on a platform that would raise the city rate to 5.9% on income over $1 million–for a combined 16.8% rate. He won last November despite a slew of billionaires spending big to stop him, a fact that no doubt worries those in California gearing up to defeat the proposed billionaire wealth tax.
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