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Home – California Politics & News – California Risks Killing the Golden Goose With Proposition 40

California Risks Killing the Golden Goose With Proposition 40

This November, California voters will choose whether to implement Proposition 40, a one-time 5% wealth tax on billionaires to fund a failing health care system. It’s part of a disturbing trend toward socialism in the U.S., wherein people misunderstand basic incentives and how taxes that target the wealthy end up harming everyone.

High net-wealth folks like Larry Page, Sergey Brin and Peter Thiel already have preemptively moved out of state to avoid the tax. These and other billionaire departures have likely reduced Prop 40’s $100-billion expected haul by about a quarter. But these departures also risk killing the Golden Goose that has funded the Golden State’s bloated budget for decades.

California gets almost half of its personal income tax revenue from the top 1% of earners, so every one of these high-earner flights is also a major blow to the state budget for years to come, partially offsetting the one-time revenue from Prop 40.

At first blush, the exodus may seem like an overreaction, since the 5% levy sounds modest next to California’s 13.3% top marginal income tax rate, but that’s an apples-to-oranges comparison. Wealth is a stock, and income is a flow. The honest comparison to a tax on income would be a tax on the change in net wealth, or the return on an asset.

Under that calculus, the proposed 5% wealth tax is, in many cases, equivalent to a multiple of California’s sky-high top tax rate on income—and in some cases equivalent to an........

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