California Governor Gavin Newsom has reportedly expressed reservations about the feasibility of a wealth tax within the state, even as he appears to be advocating for a similar policy on a national level. This shift in his stance has led to criticism from those who argue that a wealth tax is detrimental to both state and national economies.
Newsom has previously opposed a California ballot initiative that proposed a one-time 5% tax on individuals with a net worth exceeding $1 billion. Despite an offer from SEIU-United Healthcare Workers West to lower the proposed tax rate to 2%, Newsom maintained his opposition, citing concerns that such a tax would prompt wealthy residents to leave the state, thereby harming California's economy. Reports suggest that the mere proposal of the tax, which garnered over 900,000 signatures, has already led some prominent figures to relocate or consider moving their assets. Notable examples include Google co-founder Sergey Brin, who moved 15 of his LLCs out of state, and DoorDash co-founder Andy Fang, who deemed the levy "stupid" and indicated it would be irresponsible to remain if it passed. Former Uber CEO Travis Kalanick reportedly moved to Austin, Texas, in December to avoid the state's wealth tax.
However, as Newsom reportedly considers a presidential run in 2028, his public statements on wealth taxation appear to have evolved. Critics question his assertion that a national wealth tax would not lead to capital flight, pointing to his previous concerns about the impact on California. Billionaire investor Peter Thiel has reportedly purchased property in Argentina, citing concerns partly related to California's wealth tax, despite spending $3 million to oppose it. Other high-net-worth individuals are reportedly exploring Latin America for its lower tax environments.
Felipe Silva, an advisor with real estate firm Engel & Völkers based in Uruguay, noted that the country is attracting wealthy individuals, particularly from California and New York, due to its business climate and safety.
Internationally, wealth taxes have faced challenges. Of the 12 OECD countries that implemented wealth taxes in the 1990s, eight have since rescinded them, citing insufficient government revenue, economic slowdowns, and administrative complexities. Germany declared its wealth tax unconstitutional in 1997, and the Netherlands ruled in 2021 that it violated European property rights law. Concerns have also been raised about the potential unconstitutionality of such taxes in the United States.
Arguments regarding fairness in taxation also factor into the debate. The top 1% of earners in the U.S. currently contribute approximately 40% of federal income taxes while earning about 22% of the national income. In contrast, the bottom half of earners contribute around 3% of federal income taxes. Critics suggest that Newsom's shift on wealth taxation may appeal to a specific political base but may not resonate with those who focus on economic principles and fairness.