California found a convenient piggy bank to raid in response to its looming budget crisis. A proposal to tax 5% of the net worth of roughly 200 billionaires is gaining momentum. Proponents claim this “Billionaire Wealth Tax” (BWT) will save California’s crumbling health care system from federal funding cuts. While not a serious solution to an out-of-control spending problem, the initiative still draws on popular demand for the ultra-rich to pay their “fair share.”
Support for the proposal is widespread, despite fears of losing much of the budget the wealthy already fund by pushing them out of state, and of BWT eventually expanding to everyone (as income tax did). Why do Californians, most of whom also believe the state wastes taxpayer money anyway, support the BWT? Why do they think it is “fair”?
“Billionaires have built their extraordinary fortunes with the help of California resources,” the BWT initiative says. But it’s ridiculous to suggest they used roads or bridges thousands of times more intensely than the rest of us, proportionate to how much they’re now being asked to fork over.
Jensen Huang of Nvidia has bought into a version of this idea, saying he will pay “whatever taxes” he must if that’s the cost of access to California talent. He is wrong and owes no such fee. Talent follows visionaries like Huang. Nvidia, Google, Meta, and other startups over the last half century made California attractive to skilled, ambitious people. Huang and other entrepreneurs generously compensated them with salaries, bonuses, and stock options. They were not taken advantage of.
Two-thirds of California’s annual takings come from income taxes, 40% of which, on average, comes from the top 1% of earners. It’s manifestly unfair that a small minority carries such a disproportionately heavy burden in the first place.
Californians are turning a blind eye to what most would recognize as a grave injustice in a different context. Few would condone taking their neighbor’s jewelry to cover a credit card debt. It doesn’t become fair when a few individuals are singled out for outright wealth appropriation simply because others need it.
BWT is also not a routine tax increase. Many have noted its retroactive nature. BWT would apply to billionaires residing in California starting January 1, 2026, even though the vote on the proposal is not due until November. If not the whole BWT, then at least this provision will likely be struck down because the U.S. Constitution forbids retroactive laws. It would be unconstitutional and unjust for a city council to pass a law in December effective last January, making driving on Tuesdays a $10,000 offense. The BWT does the equivalent.
But BWT, like any wealth tax, reaches into the past in a more fundamental way. It would remain unjustly retroactive even if effective only from a future date. It penalizes the value of stock portfolios (and other assets) which are the result of past production and investment decisions. This makes it just as unfair as a retroactively enforced tax. The state scammed the wealthy by luring them to build their lives, companies, and wealth under one set of rules, just to turn the tables after they’ve planted roots. If the billionaires had known their wealth would be so brazenly taken away, they wouldn’t have built it — or their lives — in California. They could, of course, sell their assets, register them as income, and pay 13.3% California income tax in addition to 20-37% federal capital gains tax. The only way to avoid that is to leave California for good.
Retroactively targeting the results of past production and investment makes the BWT blatantly un-American. In the American ideal, the government’s role is to protect individuals’ life, liberty, and pursuit of happiness. This, crucially, involves protecting the property with which they build their lives. Even in cases where it’s thought that the state needs property “for public use,” as the 5th Amendment reads, the state must justly compensate the individual to whom it belonged.
Since billionaires have taken nothing they haven’t already paid for, the BWT is plain expropriation without compensation. The unjust taking flips the relationship between the government and the individual that the American ideal established. By reaching into the past, the California government acts as ruler rather than as a servant.
California faces a budget crisis. But its moral crisis is more urgent. As incredible producers, as Americans, and as Californians, the wealthiest few should not have to surrender their earned wealth. They should be left alone to live, plan, work, and enjoy the results of their ingenuity.
Instead of demanding that productive geniuses carry a welfare state on their shoulders, Californians should direct their rage toward the cause of the crisis: the officials running the dysfunctional system and burning taxpayer money at unprecedented levels.
Robertas Bakula is an associate fellow at the Ayn Rand Institute.