California’s Costly Wealth Tax Experiment

A letter rejected by the Wall Street Journal, published here at Liberty Lens.

Regarding your report, “The California Campaign to Introduce a First-of-Its-Kind Billionaire’s Tax,” wealth taxes are an uncompensated taking of property, imposed on assets purchased with already-taxed income. They are also notoriously hard to administer without distorting investment and spurring capital flight. In 1990 twelve OECD nations levied wealth taxes; all but three have since repealed them.

California’s SEIU-backed proposal attempts an end run around these problems with a supposedly “one-time” tax based on retroactive residence status. Perhaps some billionaires would be caught once in this 5% dragnet, but if voters choose to “sacrifice the rights of other citizens” as James Madison cautioned, they should not expect high net-worth individuals to stay for the inevitable sequel. The erosion of income, sales, and corporate tax bases would be severe.

Your report cites proponents who claim this tax would raise “some $100 billion”, an estimate that ignores capital mobility, asset shifting, and likely constitutional challenges. Even that haul would be less than a single year of California’s $108 billion in state-funded healthcare spending.

Instead of pursuing confiscatory taxation today that undermines future revenues, California should get serious about improving the efficiency of the resources it already commands.

Joshua Rauh and Benjamin Jaros
Stanford, CA

Joshua Rauh is the George P. Shultz Senior Fellow in Economics at the Hoover Institution, Stanford University

Benjamin Jaros is a Research Fellow at the Hoover Institution, Stanford University.