A “wealth tax,” which is really a confiscation tax that seeks to tax unrealized capital gains, has never worked anywhere. Yet, some policymakers and special interest groups are pursuing this self-destructive policy with California leading the way.
As California’s state budget is mired in debt due to excessive spending and allegations of fraud, some believe that punishing the wealthy is the only way to solve the state’s deficit. The solution, it seems, is more money from taxpayers.
Currently, the Service Employees International Union–United Healthcare Workers West (SEIU-UHW) is leading the charge to gather sufficient signatures to place the new tax on the ballot, thereby bypassing the state legislature and a potential veto. The tax is being pitched as an “emergency tax on billionaires” to save the state’s healthcare system from collapse. There appears to be no discussion as to why California’s health system is in dire straits. Yet while the issue is not yet on the ballot, it has been reported that over $1 trillion in wealth has already fled the state to other jurisdictions, as the risk is too high that the confiscation tax will become law. There seems to be little discussion of reducing government expenditures and investigating the profligate spending at the root of the problem.
Congressman Ro Khanna, a progressive, extreme left Democrat, has voiced his support of the confiscation tax, ignoring the desires of his constituents – Silicon Valley entrepreneurs, investors, and the companies they support. This has upset residents of his district, as Khanna appears to refute common sense in favor of the failed ideology.
There have been calls for Khanna to be primaried in the traditional Democrat district. In a Bloomberg report today, wealthy investor Chamath Palihapitiya said he is shocked at how easily Khanna has betrayed those he represents. Palihapitiya goes on to slam Khanna as a “self-serving, socialist disaster,” who deserves to lose his re-election.
Via X, Palihapitiya hammered Khanna, describing the representative as the “most un-entrepreneurial, creative or innovative person possible.”
He is:
1) In favor of California’s Property Seizure tax that he calls a “Billionaire” Tax. It’s already led to half of California’s Billionaire wealth to flee the state, which will leave the middle class to pay for the lost revenues.
2) Despite this, he then teamed up with Bernie Sanders to propose an additional national 5% wealth tax to spend on God knows what.
3) Despite all the virtue signaling on inequality, he is also one of the most prolific traders in Congress where just last year he traded $55.7m of stock. With everything he learns in Congress to help him, he beat the market by 13%.
Ro’s ambition is what matters most to him, and he will flop from dumb idea to dumb idea if he thinks it will serve his broader political ambitions.
Currently, that means being a quasi socialist to win favor with the extreme left of his Party. He doesn’t deserve to represent Silicon Valley, and I hope he loses badly in his re-election.
Palihapitiya is not alone in criticizing Khanna’s apparent attempt to destroy what makes Silicon Valley and the Bay Area so special.
Meanwhile, Florida is one of the biggest beneficiaries as multiple wealthy investors and entrepreneurs have relocated to the Sunshine State, which has no state income tax. Plans are also in the works to eliminate property taxes for state residents, boosting the appeal for those able to relocate. Additionally, Florida has been fiscally prudent, establishing a sufficient budget surplus, which enables state leadership to lower the tax burden on its residents.
For decades, the Laffer Curve has been taught to economics students everywhere as to how excessive taxes tend to have the opposite effect of their intent. Taxes go too high, and people react. California has now chased many wealthy individuals out of the state, meaning the state coffers will no longer benefit from the tax revenue generated by their income.
YCombinator CEO Garry Tan, who has been lambasting the confiscation tax on X, says that Khanna has abandoned his responsibility to the district as he seeks to build a national profile to run for president. He and others are supporting Ethan Agarwal to replace Khanna. Tan states:
“Ro’s political career must end. He puts his personal craven ambition above serving the people of CA17.”
While wealth taxes have always failed, there will always be some myopic individual who comes along and claims they can do it better and it will work this time. Unfortunately, once the tax fails, it is too late, the damage has already been done, and it is very difficult to reverse. This will be a shame for the Golden State.