Crazy Wealth Tax Proposals in California and New York City

The socialists who have been taking over the Democratic Party lately have a problem—the state and local jurisdictions where they are able to seize power still have to compete with rival jurisdictions that are still relatively friendly to private property and capitalist businesses. The principal targets of egalitarian fury, namely possessors of great wealth, are strongly incentivized to escape from dystopian hell-holes created by socialists to saner locales. Even those who aren’t so clearly targeted as objects of envy suffer from the effects of economic and social decline and are also incentivized to leave.

Even worse from a socialist perspective, the US Constitution restricts what a state or local government can do in terms of seizing private property. The owner of any property taken for public use must be compensated, so a local socialist enterprise can’t get around the problem of having to raise capital (and later to cover the inevitable losses associated with socialist production) with the help of government funding. However, a government’s power to tax only applies within its own jurisdiction; rich people aided by clever lawyers can figure out how to break their tax “nexus” to an oppressive jurisdiction in order to shield themselves, their businesses, and most or all of the associated wealth in other, much less extortionate jurisdictions.

Two jurisdictions where mass flight from Democratic misrule is unmistakable are California and New York City, both of which have lately experienced a net emigration of more than 100,000 residents per year. While lower-tax states like Texas and Florida are well-known destinations for such blue state refugees, in the case of New York City even the just slightly-less overgoverned New Jersey has become a magnet for a lot of former New Yorkers—it takes a lot for a true Gothamite to suffer the indignity of making that move.

One of the consequences of such flight is that as the tax base shrinks, the pressure on committed socialist ideologues to extort whatever wealth remains even more rapidly (before it too flees from their grasp) mounts. Likewise, there is also pressure to tax things that have previously been left untaxed and might still be within reach, thus pushing the envelope of whatever forms of soaking the rich are permitted by the US Constitution.

Socialist-minded Democrats insistent upon plundering the formerly-Golden State and the shrinking Big Apple are now caving into such fiscal pressures with absurd proposals for various forms of wealth taxes. A California voter initiative that has qualified for the November ballot, sponsored by a branch of the far-left Service Employees International Union (SEIU) and supported by socialist-friendly Democrats like Congressman Ro Khanna (whose own net worth happens to be a mere $232.7 million according to one estimate), features a one-time 5 percent tax on the net worth of any resident of the state and their spouse whose net worth is $1 billion or more, calculated as of January 1, 2026. Some analysts believe that the effective tax rate on wealth could be much higher than 5 percent, though there are also doubts about whether the retroactive imposition of the tax on those who left California prior to the election would be constitutional. If the initiative does get both voter and court approval, the state government would grab about $100 billion (out of an aggregate net worth of $2 trillion) from roughly 200 billionaires.

The New York City tax proposal—jointly announced by Mayor Zohran Mamdani and Governor Kathy Hochul—aims at taxing a much narrower category of wealth, namely non-rental homes, condominiums, and cooperative living units that are not the principal residence of their owners and that are worth more than $5 million (this real property surtax being pretentiously labeled a “pied-à-terre” tax). The value of these second homes would be taxed additionally at an annual rate ranging from 0.5 percent up to 4.0 percent for units valued above $25 million and would initially raise about $500 million per year for funding Mamdani’s planned municipal socialist enterprises. On April 15, Mamdani posted a gleeful envy-ridden video promoting the new tax while standing outside a $238 million penthouse owned by Kenneth C. Griffin, founder and CEO of the multinational hedge fund Citadel LLC.

At a May 5 Milken Institute event, Griffin condemned both the California and New York City tax proposals. He noted that sparking a mass exodus of business leaders implies that the politicians involved are making it clear that they “don’t welcome success” and are “pushing away people who believe in the merits of capitalism, in the merits of a free society, and in the importance of education” from their jurisdictions. Griffin is correct, of course.

What the socialist wing of the Democratic Party really wants is a national wealth tax that the “rich” can’t run away from quite so easily, as existing taxes can’t pay for existing welfare state mandates plus the interest on the existing public debt, let alone all the additional handouts, socialist enterprises, and other economic burdens that they want governments to inflict upon producers. Abolishing profits logically implies that the crushing of individual success must be escalated without limit to totalitarian extremes everywhere.

Mamdani and Khanna object that the “rich” owe their superior earnings to government interventionism and that their superior wealth gives them the power to exploit everybody else. Even if some self-described socialists balk at honestly acknowledging what the abolition of profits actually leads to, they still demand “social justice” in the form of compulsory wealth transfers as a moral imperative to fight inequality.

Murray Rothbard pointed out the folly of egalitarian attempts to impose uniformity upon mankind, treating humans as if they were interchangeable ants:

If men were like ants, there would be no interest in human freedom. If individual men, like ants, were uniform, interchangeable, devoid of specific personality traits of their own, then who would care whether they were free or not? Who, indeed, would care if they lived or died? The glory of the human race is the uniqueness of each individual, the fact that every person, though similar in many ways to others, possesses a completely individuated personality of his own. It is the fact of each person’s uniqueness — the fact that no two people can be wholly interchangeable — that makes each and every man irreplaceable and that makes us care whether he lives or dies, whether he is happy or oppressed. And, finally, it is the fact that these unique personalities need freedom for their full development that constitutes one of the major arguments for a free society.

But it’s not just individual uniqueness and personality development that is at stake:

If freedom is a necessary condition for the full development of the individual, it is by no means the only requirement. Society itself must be sufficiently developed. No one, for example, can become a creative physicist on a desert island or in a primitive society. For, as an economy grows, the range of choice open to the producer and to the consumer proceeds to multiply greatly. Furthermore, only a society with a standard of living considerably higher than subsistence can afford to devote much of its resources to improving knowledge and to developing a myriad of goods and services above the level of brute subsistence. But there is another reason that full development of the creative powers of each individual cannot occur in a primitive or undeveloped society, and that is the necessity for a wide-ranging division of labor.

Material success based specifically upon profit-seeking capitalism matters because the socialist alternative can’t produce the goods. To the extent wealth is acquired by peaceful, productive means, we need the success of billionaires; particularly when their wealth takes the form of investments in capital goods that make everybody else’s labor and natural resources vastly more productive and remunerative. While many socialists see the disaffection of “economic royalists” (as Khanna hatefully labeled the billionaires fleeing California) as a feature and not as a bug of their tax proposals, they have no substitutes for the lost physical and human capital.

Moreover, taxation never cures injustices. Though some wealthy people do obtain unjust gains through government interventionism, it doesn’t follow that all wealthy people are therefore guilty and should be punished with additional taxes—rather, the just solution is to abolish the interventionism.

A wealthy exploiter needs a corrupt, rights-violating state in order to have any opportunity to grow richer by buying market-warping privileges, immunities, and subsidies from it. Justice means fighting such concentrations of malevolent political power, not fighting concentrations of wealth. Not only is it crazy to think that governments can replace profit-motivated producers in production, it is even crazier to think that further empowering already-corrupt politicians helps the little guy.