California’s Proposed Billionaire Tax and Its Portents for Normal People

Progressive taxation is not a modern innovation, but an ancient instrument of state power. The Code of Hammurabi, dating back to 1753 BC, imposed heavier fiscal burdens on elites to stabilize political authority and replenish public coffers. Such measures were seldom temporary. Over time, they reshaped the relationship between citizens and the state by redefining which wealth was securely owned and which was held at the government’s discretion. This pattern has repeated across centuries, from early modern Europe to contemporary welfare states.

In the United States, calls to “tax the rich” have become nearly ubiquitous with election cycles, embedded not only in policy debates but in popular culture itself. When Representative Alexandria Ocasio-Cortez wore a “Tax the Rich” dress to the 2021 Met Gala, the message was less about a specific proposal than about a broader moral posture toward wealth and inequality. Against this backdrop, the California proposal for a “2026 Billionaire Tax Act” initially appeared unremarkable, just another iteration of a familiar political slogan. This proposal, however, is not merely a rhetorical flourish or a marginal policy tweak. It represents a fundamental departure from how taxation has historically interacted with private property in the United States.

Unlike most prior efforts to increase taxes on high-income individuals, which target realized income or realized capital gains, the proposed California wealth tax would reach unrealized gains, paper valuations of assets that have not been sold, priced through an actual transaction, or converted into cash. This distinction is neither technical nor trivial. It cuts to the heart of what it means to own property, possess wealth securely, and plan one’s economic future under the rule of law.

The response from wealthy individuals has been swift and revealing. Since the proposal’s announcement, at least eleven prominent billionaires (out of California’s roughly 200) with a combined net worth exceeding $400 billion, have already left or begun the process of leaving California. Historically, policies introduced as exceptional measures aimed at a small elite have rarely remained so confined. The deeper significance of this proposal lies not in its immediate revenue potential but in how it redefines what it means to own property in the United States.

How the American Tax System Has Historically Regarded Property Rights

The United States has taxed progressively for more than a century, yet it has done so within a framework that largely respects clear economic transactions. Income taxes apply to earnings over a defined period. Sales taxes apply to exchanges of goods and services. Capital gains taxes apply when an asset is sold, and its market value is revealed through voluntary exchange. Even estate taxes, controversial as they are, are triggered by a legally verifiable transfer of ownership.

This transaction-based approach matters. Taxation presumes the taxpayer has the means to pay, which in turn presumes the occurrence of a transaction that converts assets into cash or cash equivalents. John Locke’s conception of property as an extension of one’s labor rests on the idea that ownership confers control and security, not merely temporary stewardship subject to administrative discretion.

Economically and legally, American taxation has focused on flows, not stocks. Income is a flow. Consumption is a flow. Realized capital gains are a flow. Wealth, by contrast, is a stock, an accumulated bundle of assets whose value is often contingent, illiquid, uncertain, and highly sensitive to market conditions. The difficulty of taxing stocks without undermining property rights is precisely why the United States has historically refrained from doing so.

A wealth tax fundamentally alters the concept of ownership. If the state can tax unrealized gains, then all property is perpetually subject to reassessment and partial confiscation. What begins as a “billionaires” tax could easily be extended to individuals worth $100 million, $10 million, or even less. Once the government “cracks the code” on valuing and taxing unrealized assets, the rest of the tax base, whose aggregate wealth far exceeds that of billionaires, becomes an obvious target.

The distribution of American wealth underscores the risk inherent in taxing unrealized gains. While U.S. billionaires collectively hold trillions in wealth, the Federal Reserve estimates that the middle class holds tens of trillions in housing equity and retirement assets. The political temptation to broaden the tax base would be immense.

The Economic Realities of the 2026 Billionaire Tax Act

The proposed 2026 Billionaire Tax Act has not emerged organically from California’s fiscal needs. It was advanced by the leadership of the Service Employees International Union–United Healthcare Workers West (SEIU-UHW), explicitly framed as a mechanism to extract wealth from high-net-worth individuals to fund union priorities. Silicon Valley leaders and business groups quickly recognized the implications and began mobilizing opposition, warning that the tax would accelerate capital flight and undermine California’s economic base.

While marketed as a one-time levy of roughly 5 percent, the tax's structure invites repetition and escalation. Once the government establishes a method for valuing unrealized gains, it necessarily intrudes on financial privacy and asserts the authority to assess nearly everything a person owns. There is no inherent reason such a tax could not then be renewed or expanded, much as the income tax evolved from a narrow wartime measure into a permanent and expansive system.

Surveillance, Valuation, and the Problem of Personal Property

Beyond theory, the practical administration of a wealth tax raises profound and unresolved problems, not least because valuation itself without transactions requires guesswork and invites disagreement. How, precisely, would the government assess the value of individuals’ personal property in a way that is both consistent and credible? Furniture, vehicles, artwork, jewelry, electronics, precious metals, and family heirlooms would all, in principle, fall within the tax base. The proposed act defines “fair market value” as the price an asset would fetch in an arm's-length transaction between a willing buyer and a willing seller.

This is a familiar formulation from eminent domain law, notorious for its indeterminacy and litigation, and one that becomes even more problematic when applied to volatile financial assets rather than discrete takings. In 2025 alone, Elon Musk’s net worth fluctuated between roughly $434 billion and $726 billion as Tesla’s share price ranged from $214 to $489, illustrating how dramatically paper valuations can change absent any underlying transaction.

Even in the limited context of government takings, disputes over just compensation and fair market value are costly and often perceived as arbitrary. Extending that framework to everything a person owns would magnify those problems exponentially. Without intrusive inspections, the system would rely on self-reporting that invites manipulation and selective enforcement, while allowing tax officials to enter private homes or offices to catalog personal possessions would constitute an unprecedented invasion of privacy. Reducing every possession to a taxable line item is not merely administratively burdensome but culturally corrosive.

The difficulty increases when wealth takes illiquid or non-public forms. Stakes in startups, venture capital funds, private equity, closely held businesses, and real estate partnerships lack clear market prices or reliable valuation benchmarks. Should valuations be based on the most recent funding round, secondary market transactions that often occur at steep discounts, or government-issued schedules untethered from actual market conditions?

Each approach introduces arbitrariness and distortion. Taxation by estimation is fundamentally incompatible with basic principles of due process, particularly when liability is imposed on assets that generate no cash flow and cannot be readily sold, effectively requiring the state to assign speculative values to private property on an ongoing basis.

The proposal’s retroactive application compounds its constitutional and moral problems. The California 2026 Billionaire Tax Act would apply to individuals deemed state residents as of January 1, 2026, even though voters would not consider the measure until the November 2026 general election. Applying a tax to conduct or ownership that predates the law, although not explicitly barred, violates long-standing norms of Anglo-American jurisprudence. Retroactivity is widely understood as unjust because it punishes lawful behavior after the fact and undermines basic expectations of legal stability.

Lessons from Abroad: The Tiebout Effect in Action

The proposed tax ignores a well-documented empirical reality that people can move, and some already have. Charles Tiebout famously argued that individuals “vote with their feet,” sorting themselves across jurisdictions based on tax and regulatory regimes. Wealth taxes around the world have repeatedly confirmed this insight.

France’s wealth tax, which applied to individuals with net worth above €1.3 million, raised modest revenue but triggered significant capital flight. Estimates suggest that roughly 42,000 millionaires left France between 2000 and 2012, eroding other tax bases. The tax was ultimately repealed and replaced with a narrower real-estate levy. Norway’s experience has been similar. After increasing its wealth tax in 2022, the country saw several high-profile billionaires leave, followed by hundreds more in subsequent years. Revenue gains have been modest, while administrative complexity and capital flight have intensified.

Understanding the implications of a wealth tax requires clarity about how Americans build and hold wealth. Federal Reserve data show that the primary sources of household wealth are home equity and retirement accounts invested in equities. Households build net worth slowly, often over decades, by purchasing homes, contributing to 401(k)s, and holding diversified portfolios of stocks and mutual funds. These assets fluctuate in value, sometimes dramatically, but their tax treatment has historically applied only when gains are realized.

This framework allows households to plan for retirement, smooth consumption over time, and absorb market volatility without incurring annual tax liabilities untethered from cash flow. Crucially, after-tax wealth has long been treated as sacrosanct in American political economy. While income may be taxed repeatedly, accumulated wealth has generally been regarded as legitimately owned, subject only to inheritance taxes or realized gains upon transfer. This distinction underpins long-term investment, capital formation, and intergenerational planning.

Economists from Adam Smith to Friedrich Hayek have emphasized that secure property rights are foundational to economic growth and personal liberty. When ownership becomes conditional on state valuation and ongoing payment, property ceases to function as a stable anchor for individual autonomy.

Conclusion: A Dangerous Expansion of State Power

People object to the 2026 Billionaire Wealth Tax, not simply because it raises taxes, but because it undermines fundamental property rights, invites invasive surveillance, violates legal precedent, and establishes state power in ways that history suggests will expand. Like the income tax, Social Security, Medicare, and Medicaid before it, the scope and scale of such a tax would almost certainly grow.

Worse still, wealth taxes have a poor track record of raising net revenue once behavioral responses are taken into account. But they do erode trust in institutions, destabilize investment, and weaken the legal foundations of a free society. Americans who care about preserving private property, economic dynamism, and the rule of law should reject policies that treat ownership as a taxable offense.

The issue is not whether the wealthy should contribute to public revenues, but whether ownership itself should be treated as a contingent grant from the state. Wealth taxes discard centuries of American legal tradition in exchange for a policy that will inevitably fail.

Paul Mueller is a Senior Research Fellow at the American Institute for Economic Research.

Julia R. Cartwright is a Senior Research Fellow in Law and Economics at the American Institute for Economic Research.