Voters in California this fall will have to determine whether the state will institute a billionaire tax. Advocates of this proposal have been pushing for these kinds of money grabs for decades—and their arguments often run the same. The base is narrow, the lifespan is limited, the cause is sympathetic.
But the numbers paint a bleaker picture. Talent and capital will flee, and the tax will be in court before the ink can dry. All Californians will feel the effect, and the pitfalls that will come are not worth the risk.
Simply titled the “2026 Billionaire Tax Act,” the ballot measure calls for a one-time tax of 5 percent on the net worth of the state’s billionaires. It sounds simple. But due to aggressive design choices and a host of drafting errors, this 5 percent number should be viewed with as much skepticism as the claim that this would be a one-time event.
Take, for instance, the proposal’s calculation for how to value corporate founders’ stakes. Tech CEOs often hold “super-voting shares” that exceed their ownership percentage, giving them more control of their companies. Example: DoorDash founder Tony Xu. He owns 2.6 percent of DoorDash but controls 57.6 percent of voting shares, yielding a tax liability of $2.62 billion on an ownership interest worth $2.41 billion under the proposal. Selling his shares would also incur capital gains tax, making Xu’s total tax liability for his DoorDash shares $4.17 billion, or 173 percent of their value.
The drafters say this is not their intent, but courts will have to weigh intent against the initiative’s poorly drafted language. Do Californians want to roll the dice?
Moreover, the tax doesn’t just apply to Silicon Valley. Private businesses, too, have a tough go under this plan. As drafted, the act would throw away current valuation rules for closely held companies while applying astronomical penalties that discourage taxpayers from contesting inflated assessments of their assets by the state.
Accounting pressures aside, though, the compliance cost shouldn’t be the focus of this debate. All taxes involve trade-offs. The trade-off of this proposal isn’t a one-time tax to fill a budget gap. It’s a new tax system that will drive people and businesses away.
This isn’t a hypothetical projection. People like Larry Page have already cut ties with the Golden State. With uncertainty of how features of the proposal, like the residency requirement of January 1, 2026, will play out in the courts, there’s little incentive for a new startup to scale up in California. And this is what’s happening without the tax in place—Europe tells us what would happen if this wealth tax were to be enacted. Not only do people leave, but other countries try to vie for their business.
When Spain introduced its solidarity wealth tax, Portugal extended its tax regime for nonresidents since more Spanish taxpayers were considering changing their tax residence. Former French finance minister Bruno Le Maire tied the removal of an older version of his country’s wealth tax to competitiveness, saying: “It’s essential we make these changes if we want to attract more foreign investment.”
To be sure, wealth taxes in Europe were not installed as one-time affairs, as California claims it would do; but it only takes a business leaving once to lose its tax revenue, job creation, and philanthropy forever. California is already over-dependent on a thin sliver of high earners for its income tax base, meaning downstream damage from an avalanche of departures could diminish whatever revenue the tax on billionaires hoped to raise. It’s these businesses, too, that are the incubators for more startups. They’re often the ones making the large-scale donations to local hospitals and universities. Many keep the dream alive for the next generation of talent who want to pursue a career in tech. Why would California want to tell the next class of entrepreneurs their discoveries are best suited for other states?
This one-time tax is being pitched as a budget solution for ongoing fiscal challenges in the state of California. Health and human services spending is up nearly 60 percent over the last four years, while population growth has plateaued. That’s not something a new, one-time tax will be able to address.
And this doesn’t even consider the inevitable legal challenges wealth taxes continuously face. The California proposal will be a magnet for litigation, both on its specifics and on wealth taxation broadly. If adopted, it’s not a matter of if it would go to court, but when.
The 2026 Billionaire Tax Act may be sold as a simple. But its consequences—for taxpayers, the state’s economy, and the constitution—make this gamble far riskier than advertised.
Daniel Bunn is president and CEO of the Tax Foundation.