California’s Prop 40 is a wealth grab

When California voters head to the polls, they won’t just be considering a new tax — they’ll be deciding whether to allow the state to confiscate wealth. What else would you call it if a state suddenly and retroactively grabs 5% of about 200 individuals’ net worth with a “one-time” tax?Proposition 40’s wealth tax is fundamentally different from an income tax. A wealth tax could create a massive tax bill, even in a year when someone’s wealth shrank.For example, Oracle chairman Larry Ellison’s estimated net worth has fallen by about $80 billion since January 2026. Ellison now resides in Florida, but had he still been a California resident on Jan. 1, 2026, Prop 40 might have saddled him with a roughly $9 billion wealth tax bill (based on his current estimated net worth). Ellison’s net worth fell because Oracle’s stock price has dropped about 36% since the start of the year. Wealth that exists on paper can be fleeting. But even if one’s net worth proves to be an illusion, the taxes one could owe on it under a wealth tax would be very real.Most billionaires’ wealth is based on the value of the companies they own. To pay their 5% wealth tax bill, many would be forced to liquidate some stocks.They would also need expensive appraisals of their businesses and personal assets. Valuations inherently involve some subjectivity and imprecision. But if California’s Franchise Tax Board determines that an appraiser significantly understated someone’s wealth, not only could the billionaire be subject to massive penalties, but so could the appraiser. By penalizing appraisers for low valuations, the state would incentivize them to produce higher valuations, leading to higher tax liabilities.Hoover Institution scholars Joshua Rauh and Benjamin Jaros found that seven billionaires with an estimated $539.9 billion of wealth left the state between the initiative’s filing and the pivotal residency date of January 1, 2026. And since then, there have been many more departures.Moving is a completely reasonable response to an unreasonable policy.The prospect of a one-time retroactive wealth tax becoming law (or even coming close) should deeply disturb people’s sense of security in their property rights. If California can confiscate 5% of people’s wealth, there’s no limiting principle stopping it from confiscating 10% of their wealth in a year or two. And if it targets billionaires today, what’s to stop it from casting a wider net tomorrow?Silicon Valley billionaires and their companies are California’s golden goose, and the state’s insatiable appetite for more tax dollars could push California to cook its own goose. Can anyone blame billionaires for leaving?Who can honestly say they trust the state of California to use their money better than they would use it themselves or to not ask for more in coming years?Remember, California said it could build high-speed rail between Los Angeles and San Francisco by 2020 for $33 billion — but it will be lucky to finish the Bakersfield-to-Merced section for that much, certainly not before the 2030s.California is unlikely to be satisfied with a “one-time” 5% confiscation of wealth.Hoover’s Rauh and Jaros estimate that California billionaires contribute $3.3 billion to 5.8 billion annually in state income taxes. Prop 40 puts that income tax revenue stream at risk, but it also jeopardizes jobs, other tax revenues, and a whole host of downstream problems if fleeing billionaires take their companies with them. Across simulations that account for different possible outcomes related to departures and court rulings, Rauh and Jaros estimate that Prop 40 will lead to an expected net present value loss of $38.9 billion in California revenues over the long run.CALIFORNIA BILLIONAIRE TAX COULD RESULT IN FUTURE REVENUE LOSS, STUDY SHOWSDriving out the state’s largest fortunes and future capital investments is a clear loser for California. Even Gov. Gavin Newsom (D-CA) gets it, as he has come out against the wealth tax scheme.Unless the proposition goes down in resounding defeat, California risks spooking its golden goose into flying away to avoid getting eaten.Preston Brashers is a Research Fellow in the Plymouth Institute for Free Enterprise at Advancing American Freedom.