Explaining California’s billionaire tax: The proposals, the backlash and the exodus

The battle over a new tax on California’s billionaires is expected to intensify in the coming months as citizens argue over whether the state should squeeze its ultra-rich to better serve its ordinary residents.

The billionaires tax proposal that ignited the storm is still far from being approved by voters or even coming to a vote, but the idea has already drawn backlash from tech moguls, some of whom have already moved their bases out of the state.

Under the Billionaire Tax Act, Californians with more than $1 billion would pay a one-time 5 percent tax on their total wealth. The Service Employees International Union-United Healthcare Workers West, the union behind the law, said the measure would raise much-needed funds for health care, education and food assistance programs.

Other syndicates have swooped in on billionaires, targeting the wealthy in Los Angeles.

A group of Los Angeles unions announced Wednesday that they are proposing a ballot measure to raise taxes on companies whose CEOs earn 50 times more than the median salary of their employees.

Here’s how this fight could continue to play out in the Golden State:

Who would be affected?

California’s billionaires tax would apply to approximately 200 California billionaires who reside in the state starting January 1. About 90% of the funds would go to health care and the rest to K-14 public education and state food assistance.

The tax, due in 2027, would exclude real estate, pensions and retirement accounts, according to an analysis by the Legislative Analyst’s Office, a nonpartisan government agency. Billionaires could spread their tax payments over five years, but they would have to pay more.

Which billionaires are already distancing themselves from California?

Google co-founders Larry Page and Sergey Brin

Google is still headquartered in California, but documents filed in December with the California Secretary of State show that other companies linked to Page and Brin have recently left the state.

One filing, for example, shows that one of the companies they managed, now named T-Rex Holdings, moved from Palo Alto to Reno last month.

Business Insider and the New York Times have already reported on these files. Google did not respond to a request for comment.

Peter Thiel, co-founder of Palantir

Los Angeles-based Thiel Capital announced in December the opening of an office in Miami. The company did not respond to a request for comment. Thiel recently contributed $3 million to the California Business Roundtable political action committee, which opposes the ballot measure, according to documents provided to the secretary of state’s office.

Larry Ellison, co-founder and CTO of Oracle

Years before the wealth tax proposal, Ellison had begun to withdraw from California, but he has continued to move further away from the state since the proposal emerged.

Last year, Ellison sold his San Francisco mansion for $45 million. The house at 2850 Broadway was sold off-market in mid-December, according to Redfin.

Oracle declined to comment.

Andy Fang, co-founder and chief technology officer of DoorDash

Fang, who was born and raised in California, said on X that he loved the state but was considering moving.

“Stupid wealth tax proposals like this make it irresponsible for me not to consider leaving the state,” he said.

DoorDash did not respond to a request for comment.

What else would it take to become law?

To qualify for the ballot, proponents of the proposition, led by the health care union, must gather nearly 875,000 signatures from registered voters and submit them to county election officials by June 24.

If retained on the November ballot, the proposal would face intense scrutiny and debate, with both camps having already amassed significant war chests to bombard voters with their positions. It would require a majority of voters to approve the ballot measure.

Lawyers for the billionaires also signaled that the battle would not be over even if the ballot measure passed.

“Our clients are prepared to mount a vigorous constitutional challenge if this measure moves forward,” Alex Spiro, a lawyer who has represented billionaires like Elon Musk, wrote in a December letter to California Gov. Gavin Newsom.

What are the chances of the initiative?

It’s unclear whether the ballot measure has a good chance of passing in November. Newsom opposes the tax and his support has proven important for ballot measures.

In 2022, he opposed a ballot measure that would have subsidized the electric vehicle market by raising taxes on Californians who earn more than $2 million a year. The measure failed. The following year, he opposed legislation to tax assets exceeding $50 million. The bill was shelved before Parliament could vote on it. A bill that would impose an annual tax on California residents whose net worth exceeded $30 million also failed in 2020.

However, Sen. Bernie Sanders (I-Vt.) and Rep. Ro Khanna (D-Fremont) supported the wealth tax proposal, and Californians have already passed temporary tax measures. In 2012, they approved Proposition 30 to raise the sales tax and personal income tax for residents with annual income over $250,000.

Could this solve California’s problems?

The Legislative Analyst’s Office said in a December letter that the state would likely collect tens of billions of dollars through the wealth tax, but could also lose other tax revenue.

“The exact amount the state would collect is very difficult to predict for many reasons. For example, it is difficult to know what steps billionaires would take to reduce the amount of taxes they pay. Additionally, much wealth is based on stock prices, which are constantly changing,” the letter said.

California economist Kevin Klowden said the tax could create future budget problems for the state. “The problem is that this is a one-off solution to what is a systemic problem,” he said.

Supporters of the proposal said the measure would raise about $100 billion and objected to the idea that billionaires would flee.

“We’re seeing a lot of cheap talk from billionaires,” said Brian Galle, a law professor at UC Berkeley who helped write the proposal. “Some people leave and change their behavior, but the vast majority of rich people don’t, because it doesn’t make sense.”

However, the reluctance has intensified.

Chamath Palihapitiya, a Palo Alto-based venture capitalist, estimates that the loss of income from billionaires who have already left the state would result in greater losses in tax revenue than those gained by the new tax.

“By launching this ill-conceived attempt at an asset tax, California’s budget deficit will explode,” he posted on X. “And we still don’t know if the tax will even pass.”

The union which supports the initiative believes that “the story of the exodus of billionaires” is “vastly exaggerated”.

“Right now, it appears the overwhelming majority of billionaires have chosen to stay in California past the Jan. 1 deadline,” said Suzanne Jimenez, chief of staff for SEIU-United Healthcare Workers West. “Only a very small percentage stayed before the deadline, despite weeks of Chicken Little talk claiming that a modest tax would trigger a mass departure. »

Times staff writer Seema Mehta contributed to this report.