California Wealth Tax | 2026 Billionaire Tax Act

Proponents of a California wealth tax ballot initiative insist that the proposed wealth taxA wealth tax is imposed on an individual’s net wealth, or the market value of their total owned assets minus liabilities. A wealth tax can be narrowly or widely defined, and depending on the definition of wealth, the base for a wealth tax can vary. is temporary: a one-time 5 percent tax that can be paid upfront or over five years with deferral charges. Others are skeptical that the wealth taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. would be allowed to expire. Crucially, many billionaires who would be subject to the tax seem to think that it will become a long-term fixture of California’s tax code if approved by the voters this fall, which could influence decisions to depart.

There’s good reason to believe that opponents’ policy fears are warranted—that the rationales for the wealth tax are largely inconsistent with a temporary tax, and that if the state imposes a one-time wealth tax, there will be considerable pressure to extend it or make it permanent. Concerns that the ballot measure enables the legislature to extend the tax without returning to the voters, however, appear to have less warrant.

The ostensive purpose of the 2026 Billionaire Tax Act is to raise revenue to offset reductions in healthcare expenditures under H.R. 1. Proponents wish not only to cover the costs of the higher state funding share created by the federal law, but also to expand coverage at the state level to cover those no longer eligible at the federal level. Whether the new federal policies will remain in place is an open question, but there is certainly no guarantee that California’s costs will revert to lower levels in the coming years. Proponents have proposed a temporary tax to fund new spending that could easily become recurring.

But efforts to impose a wealth tax in California far predate H.R. 1. The same tax law professors and economists behind this year’s wealth tax ballot measure were also the drafters and champions of California legislation in 2021 and 2023 that would have created permanent wealth taxes. These bills were part of a coordinated effort on wealth taxes and other taxes on high-net-worth households, including wealth tax proposals in Hawaii and Washington. Clearly, proponents felt a wealth tax was worth pursuing with or without H.R. 1.

The California measure’s drafters have co-written journal articles on additional (permanent) state wealth tax designs, and most recently, the same people who drafted California’s supposedly temporary wealth tax have also been involved with Sen. Bernie Sanders’ newly proposed permanent wealth tax at the federal level. A one-time tax might have been a political concession, but there is no question that the measure’s proponents believe in wealth taxes as a permanent policy.

The tax is, moreover, designed as an excise taxAn excise tax is a tax imposed on a specific good or activity. Excise taxes are commonly levied on cigarettes, alcoholic beverages, soda, gasoline, insurance premiums, amusement activities, and betting, and typically make up a relatively small and volatile portion of state and local and, to a lesser extent, federal tax collections. on “the activity of sustaining excessive accumulations of wealth” and is a prime example of a growing emphasis in some quarters on the erosion of wealth as a goal, rather than merely a consequence, of progressive taxA progressive tax is one where the average tax burden increases with income. High-income families pay a disproportionate share of the tax burden, while low- and middle-income taxpayers shoulder a relatively small tax burden. policy. If proponents regard “excessive accumulations of wealth” as a problem to be addressed through public policy, then the case for wealth taxation will not have changed one or five years from now.

Temporary taxes have a way of sticking around. California’s current top rates were first adopted in 2012 as a seven-year surcharge. Voters extended the income tax increases in 2016 and will decide this year whether to make the higher rates permanent. But at least this involved going back to the voters.

New York’s millionaire tax, adopted in 2009 as a two-year expedient to get through the Great RecessionA recession is a significant and sustained decline in the economy. Typically, a recession lasts longer than six months, but recovery from a recession can take a few years., has been extended multiple times, with the current budget proposing an extension through 2032. Since 2009, temporary individual and corporate income taxA corporate income tax (CIT) is levied by federal and state governments on business profits. Many companies are not subject to the CIT because they are taxed as pass-through businesses, with income reportable under the individual income tax. increases in Connecticut, Delaware, Illinois, New Jersey, and Wisconsin have also become permanent, with slight adjustments. Not all temporary increases become permanent, but states are often loath to give up revenue sources they’ve acquired, even if the original reason for the tax increase no longer exists.

The economic consequences of the initial, one-time wealth tax, moreover, could make further wealth taxation more likely: by driving some billionaires, potentially along with their investments and business interests, out of state, the California wealth tax will shrink the existing tax baseThe tax base is the total amount of income, property, assets, consumption, transactions, or other economic activity subject to taxation by a tax authority. A narrow tax base is non-neutral and inefficient. A broad tax base reduces tax administration costs and allows more revenue to be raised at lower rates.. Underperformance of other taxes, particularly the individual income taxAn individual income tax (or personal income tax) is levied on the wages, salaries, investments, or other forms of income an individual or household earns. The U.S. imposes a progressive income tax where rates increase with income. The Federal Income Tax was established in 1913 with the ratification of the 16th Amendment. Though barely 100 years old, individual income taxes are the largest source, could easily become the rationale for future wealth taxation.

The incentive, therefore, is for billionaires to leave now, and for future founders to create their startups elsewhere. No one wants to be the one holding the bag if the first exodus increases the likelihood of future wealth taxes. Despite drafters’ efforts to lock in billionaires by using a January 1, 2026, residency date, there are good reasons to believe that this date will not survive legal challenges, and that taxpayers could avoid some or all liability by moving later this year.

Some critics of the proposed wealth tax worry that it contains the seeds of its own extension. However, it would take an unusually creative interpretation of its language for this to be the case.

California’s constitution currently caps the taxation of intangible personal property at 0.4 percent, which would, by definition, preclude a wealth tax at a rate above 0.4 percent absent a constitutional amendment. Other existing constitutional provisions, as well as the language of ballot initiatives, which have quasi-constitutional status (the legislature cannot amend or repeal them on its own), also create impediments to a wealth tax. Previous legislative proposals have been paired with such constitutional amendments, which must be ratified by the voters. Some fear that this year’s ballot initiative, although supposedly creating a one-time tax, will permanently lift the constitutional barriers that restrain the legislature’s authority to adopt a future wealth tax on its own.

The initiative, however, does not repeal the relevant constitutional provisions. It instead allows the 2026 California Billionaire Tax Act to supersede them. The new constitutional language appears to stipulate that (1) only this Act can supersede the 0.4 percent cap and other limitations, and (2) this Act is a one-time tax. While the legislature has the authority to amend the Act in ways that further its purposes, any amendment that turned it into a permanent tax seems facially inconsistent with its description (including in the constitutional language) as a one-time tax.

This is not to rule out the possibility entirely. Perhaps courts would bless creative language allowing the tax to be imposed in future years on those who later become billionaires, on the theory that it is imposed one time on each taxpayer. Perhaps they would regard a retroactive rate increase spread out over additional years as still being one-time. Perhaps they would conclude that the specific supersession of the cap stands for a general principle that it is not inviolable. All these interpretations seem wildly unlikely, at odds with the text of the initiative and an affront to due process, but states have tried wilder things, and judicial deference to legislative prerogative has sometimes prevailed. These concerns cannot be dismissed out of hand, but they do seem highly improbable.

Still, even if the legislature cannot extend the tax without returning to the voters, it is easy to imagine future budget shortfalls—exacerbated by the economic consequences of the wealth tax—prompting lawmakers to seek authorization for a permanent wealth tax. The apparatus for collecting and administering the tax would already be in place. Voters should consider the possibility that a temporary wealth tax would pave the way for a permanent one. It’s clear that the tax’s targets are already taking that possibility seriously.