California's proposed billionaire tax contains a remarkable rule. A billionaire who loses $1 billion at a casino can reduce his billionaire-tax liability by $50 million. A billionaire who instead gives that same $1 billion to the American Red Cross may receive no reduction at all.

That creates a peculiar result. The billionaire can lose the property — but apparently cannot give it away.

An example: Brothers Bob and Tom are each hypothetical residents of California and each own $10 billion of assets that will be subject to California’s proposed billionaire wealth tax.

In August, Bob went to Las Vegas and lost $1 billion gambling in bona fide, arm’s-length casino wagers. Perhaps his only consolation was that his proposed California billionaire tax would decrease by $50 million.

Brother Tom gave $1 billion directly to the American Red Cross. Under the proposal, the gift does not reduce his billionaire-tax net worth. The initiative further provides that all receivables are included in net worth unless and until the FTB adopts regulations exempting particular categories. Accordingly, an income-tax refund receivable existing on December 31, 2026, as a result of a charitable deduction appears to be another asset in the billionaire-tax calculation. 

Bob’s casino loss reduces his billionaire tax; Tom’s charitable gift may increase it. You cannot make this stuff up.

If the billionaire tax initiative passes on November 3, nonprofit charitable institutions may be among its biggest economic losers. The proposal provides that net worth includes property transferred for less than fair market value after October 15, 2025, if the property, considered alone or together with other substantially interchangeable transferred items, has a fair market value exceeding $1 million. Property transferred to certain trusts is excepted. On its face, the provision is broad enough to encompass a large outright charitable gift.

Thus, a large cash gift or transfer of substantially interchangeable securities after October 15, 2025 and on or before December 31, 2026 valuation date can remain in the donor's billionaire-tax net worth even though the donor no longer owns the property.

The result is that for philanthropic individuals subject to the full five percent billionaire tax, the billionaire tax includes a five percent California tax on philanthropy for charitable gifts made after October 15, 2025 and through........

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