Election day is here, and in California, a key ballot measure that could harm the innovation ecosystem the world envies is on the ballot. The California Confiscation Tax, or “wealth tax” (Proposition 40), could push innovators and investors further away from the Golden State.
The Confiscation Tax, concocted by a group of left-wing academics and supported by the state’s top union to plug the health care funding gap, would seize wealthy residents’ wealth, including unrealized gains. As packaged, a billionaire on paper would have to hand over 5% of their estimated net worth, including unrealized gains, based on a number created by a state government official1
Many successful founders have most of their worth in shares, either public or private. Private shares aren’t always easy to liquidate. Both types of securities can determine a founder’s ability to control their firm’s destiny. A Confiscation Tax can compel an individual who may be wealthy on paper but not in cash to sell shares to raise enough money to pay the proposed tax. Obviously, this creates a powerful reason to leave California.
The proposal has clearly compelled wealthy individuals to flee California, with Florida as the top destination—a state with no income tax or capital gains tax. Estimates indicate that from $500 million to $1 trillion in wealth has already left California, removing revenue that would otherwise fund its tax funded programs. If approved, more affluent individuals and investors are expected to leave. Just this week, Max Levchin, PayPal founder and CEO of fintech Affirm, told Bloomberg in an interview that he would probably leave California if the Confiscation Tax becomes law. Levchin is worth an estimated $2.3 billion.
An SEC filing by Meta indicated that founder and CEO Mark Zuckerberg was worried the tax could strip him of control of the company he founded. The filing explained:
“If California’s Proposition 40, a statewide ballot measure on the November 3, 2026 general election ballot and commonly referred to as the “California wealth tax,” is enacted as law in California, it is expected that Mr. Zuckerberg could become liable for a significant, multi-billion-dollar tax payment based on his ownership of stock in the Company. In light of this potential tax exposure, Mr. Zuckerberg informed the Special Committee that he was evaluating relocating his primary residence outside California and that steps toward any such relocation, including any listing of his residential real estate in California on the market, would be public and inevitably noted and commented upon by Company employees and, accordingly, raise questions for management of the Company going forward. The Special Committee understood that any such step could be the first in a process to establish residence outside California.”
In March, Zuckerberg closed on a $170 million house on Indian Creek Island in the Miami area.
The proposal’s folly is beyond comprehension. California’s status as home to the world’s leading innovation ecosystem, hence unicorn creation, means the bill tries to kill the goose that lays the golden eggs. Even left-wing California Governor Gavin Newsom opposes the bill, worried it will harm the state’s competitiveness.
Just last month, research published by the National Bureau of Economic Research found that the “present value of permanently lost income tax collections from departures more than offsets the one-time wealth tax revenue, yielding a net present value of negative $38.9 billion.”
Economists Benjamin Jaros and Joshua Rauh ran 100,000 simulated outcomes and found that the Confiscation Tax would reduce California’s tax revenue. Proponents claim it will generate $100 billion in new revenue, but as others have noted, reality will be different: it is estimated to generate around $30 billion, only to lose billions more.
Fears have emerged that once proponents of the confiscatory measure realize the new tax falls short, less affluent people will be on the hook as advocates move downstream to individuals worth $100 million, $10 million, and then, perhaps, everyone.
Then there is California’s history of governance. From ending homelessness as we know it to the train to nowhere, and from reports of fraud in the public sector, why doesn’t the state focus on getting its house in order first?
Estimates have placed the amount that California has spent on housing and homelessness during Newsom’s tenure between $22 billion and $37 billion. Newsom famously declared multiple times that he would end homelessness in the state, most recently in 2021, committing to do so within five years. That hasn’t happened.
As of this year, the California High Speed Rail project, or “train to nowhere,” approved in 2008 and expected to be finished in 2020, has spent over $15 billion. The current estimate to complete it now sits at over $125 billion. No physical tracks have been laid.
Estimates of public health care fraud are probably in the billions of dollars. The California Department of Justice notes that actual stolen funds likely reach billions of dollars annually. Just last month, the US Department of Justice charged 15 individuals in California for almost $2 billion in fraudulent healthcare claims.
So perhaps California should focus on fixing what it has instead of throwing more money at a rapacious state government that has proven itself incompetent. Recent polling indicates that support for the Confiscation Tax has begun to wane as a sliver of common sense emerges. Let’s hope Californians make the right decision and vote no on Proposition 40.
