California voters will consider a novel tax on billionaires this November, a measure that would levy a one-time 5% tax on the total assets of the state's roughly 250 wealthiest residents. This proposal, unique in its scale and target, has generated significant debate among politicians, economists, and the ultra-wealthy themselves.
The initiative aligns with a broader sentiment among some Democratic politicians who advocate for increased taxation on the wealthy. Figures like New York Mayor Zohran Mamdani, Texas Senate candidate James Talarico, and Georgia Sen. Jon Ossoff have publicly supported taxing the rich more heavily. However, California is the only state where such a proposal has reached the ballot.
Supporters of the California measure include labor unions and progressive lawmakers such as Sen. Bernie Sanders and Rep. Ro Khanna. Yet, the concept faces skepticism from moderate Democrats and some policy experts.
Cristobal Young, a sociology professor at Cornell University and author of "The Myth of Millionaire Tax Flight: How Place Still Matters for the Rich," expressed reservations. "It’s a one-time tax, but this is not a one-time problem," Young stated in an interview. He questioned the efficacy of a single-time "Band-Aid" solution for an ongoing issue of wealth accumulation.
Young's research suggests that taxes on millionaires at the state level have historically been effective in raising revenue without causing significant outward migration of wealthy individuals. "Our experience with taxing millionaires at the state level has been very successful," he said. "Many states over the years have adopted it after watching their neighbors to see how it plays out. How it plays out is you get extra revenue and people aren't really moving away."
However, Young noted that the California proposal represents a fundamentally different scale of taxation. "None of these previous tax proposals have suggested that a small number of people would get tax bills up to $10, $12, or $13 billion," he explained. "We’ve been talking about significantly smaller tax policies."
He further elaborated on the nature of wealth accumulation among the ultra-rich, explaining the concept of unrealized capital gains. When individuals hold assets like corporate stock that appreciate significantly in value over time, they do not pay taxes on this increase until the asset is sold. This allows vast fortunes to grow with minimal or no taxation.
"It’s a fundamental loophole in the tax system," Young said. "Every paycheck, I’m paying taxes straight out of that, and so are all your listeners. But if you make your money from holding corporate stock that’s appreciating in value dramatically over time, you don’t pay any tax on that until you sell it."
Young pointed to federal proposals, such as the Billionaires Income Tax Act, as a potential alternative. This approach would tax annual increases in wealth rather than a lump sum of total assets. "If you have $200 billion in Google stock and the next year it’s worth $220 billion, you owe taxes on the $20 billion, not the $220 billion," he described. "It’s just on the increment year-to-year and not everything that’s ever happened in the past. That switches it from being a wealth tax to being an income tax."
While acknowledging the flaws in California's specific proposal, Young emphasized its importance in initiating a broader public discussion on how to address significant loopholes within the tax system and the growing issue of wealth inequality.