Will Common Sense Doom the Wealth Tax for California?

California’s push to tax its billionaires is shaping up as a fiscal disaster. For one thing, the proposed levy on wealth is projected to fall short of its backers’ revenue projections — bringing in some $30 billion as opposed to the hoped-for $100 billion. Even worse, from the vantage point of the tax’s proponents, the envisioned levy has sparked a flight of billionaires. So the tax, new research finds, would end up costing California some $40 billion in lost revenue. That’s the upshot of a new analysis published by the National Bureau of Economic Research by two economists at the Hoover Institution, Benjamin Jaros and Joshua Rauh. Their report comes just days before Golden State voters are set on November 3 to decide at the polls the fate of the proposed wealth tax. The proposal calls for a one-time 5 percent levy on the assets of billionaires residing on January 1 of this year in California.By attempting to impose the tax retroactively, though, the backers of the wealth tax could have undermined their own cause by inducing Coast billionaires to redomicile themselves. After all, as historian John Steele Gordon writes in our pages of the debate over wealth taxes, “one hurdle is that billionaires have feet.” Messrs. Jaros and Rauh report that California had some 212 billionaires in residence prior to the wealth tax being mooted.Since the tax was proposed, though, the economists report that at least seven billionaires have decamped for less extortionate pastures. These include the two co-founders of Google, Larry Page and Sergey Brin, whose combined net worth is pegged at more than $500 billion. Tech mogul Peter Thiel, Uber co-founder Travis Kalanick, and director Steven Spielberg, too, have confirmed their departure from the Golden State. In all 28.5 percent of the wealth held by Coast billionaires has left the state, Messrs. Jaros and Rauh assert, avoiding a collective tax bill of some $29 billion. The two economists suggest that the seven billionaires cited in their report are but the tip of the iceberg and that other wealthy Californians have left, too. As a result, they say, “The present value of permanently lost income tax collections from departures more than offsets the one-time wealth tax revenue.”The billionaires’ mobility seems to have surprised the levy’s backers. “They’ll never even notice” was how the head of the SEIU–United Healthcare Workers West, Dave Regan, pitched the tax. Of the levy on those who are, in his words, “rich as hell,” he sneered “I’m sorry that it offends the sensibilities of the wealthiest people on planet Earth.” He said that the tax was needed to offset GOP budget cuts: “there are 250 of you” while 3.5 million would “lose healthcare.”Such class warfare-inflected rhetoric, one imagines, could well have encouraged the state’s wealthiest residents to pull up stakes. Mr. Regan later told the Financial Times that he had been startled by the “virulence of the reaction to his plan.” Plus, too, the proposal, per polling, fails to find a majority of support among likely voters. Some 46 percent back the proposed tax, with 43 percent opposed, Politico reports, despite recent lobbying by Senator Bernie Sanders.“Sitting below a majority this late in a campaign is a red flag, according to ballot initiative veterans,” per Politico. A recent survey found, too, that two-thirds of respondents “doubted it would be a one-time tax.” Fears that the wealth tax would later be expanded to non-billionaires was also resonating with voters, the survey found. That suggests, we’d like to think, that on Election Day, even in a state as liberal as California, common sense could yet prevail.

Will Common Sense Doom the Wealth Tax for California?

Will Common Sense Doom the Wealth Tax for California?

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