This week, the union backing the initiative to place a 5% wealth tax on the ballot in California announced that it has gathered the necessary 875,000 signatures to appear before voters this November. While it still must be officially certified, Service Employees International Union-United Healthcare Workers West claims to have gathered well over a million signatures, making it a near certainty that it will eventually be certified.
So, with procedural questions settled and absent a last-minute deal to keep it off the ballot, the question will likely go to the voters. NTUF has published a comprehensive report looking at all the economic, administrative, and constitutional defects that the proposed one-time 5% tax on the net worth of billionaires suffers from.
But, when it comes down to it, there’s really only one thing that voters should need to know: the tax is likely to lose the state money — and, in fact, it probably already has.
While proponents of the tax claim that it would raise the state $100 billion one-time, they are essentially just multiplying Forbes net worth statistics by a flat percentage. A more exhaustive study by Stanford’s Hoover Institution estimates that the tax would raise just 40% of that amount, and, factoring in outmigration, would actually end up costing California around $25 billion.
Similarly, the California Tax Foundation estimates that billionaire outmigration due to the tax would result in a $3.3 to $4.5 billion reduction in annual revenue. For context, NTUF currently estimates that total outmigration out of California costs the state about $4 billion in annual revenue at both the state and local levels. In a single stroke, the state that currently suffers the most revenue loss from out-migration in the nation would more than double that loss.
The most alarming part of these above analyses is that they are not factoring in the downstream economic effects of reduced investment and business departures, both of which would negatively impact state revenues as well. The tax loses money long before those dynamic impacts can come into play.
And, even should the tax be approved by voters, it will face a bevy of administrative and legal challenges, both of which are likely to prevent the tax from ever coming into full force. California could well end up getting the worst of both worlds — all of the outmigration effects, and none of the new revenue.
So, the real question to be put before voters in California this November is not whether they want to tax billionaires, but whether they want to approve a tax that is so poorly designed that it will lose the state significant amounts of money. For even the most tax-enthused progressive, that should be a no-brainer.