California’s Wealth Tax Gamble: Jonathan Williams on American Radio Journal

This November, Californians may be asked to approve what would be the nation’s first wealth tax, a one-time, perhaps 5% levy on the net worth of billionaires. It is presented as a simple matter of fairness, but as with so many political proposals, what is simple in rhetoric becomes very complicated in reality. Many times, even before the measure has passed, some of the very people it targets have done what millions of other Californians have already done. They have exited California for a lower-tax state with more economic opportunity.

Their departure alone could erase a significant amount of the total revenue proponents originally projected from the wealth tax. Politicians often speak as if wealth exists in a vacuum, static and waiting to be tapped. That wealth is dynamic and created by people, and people can move—and do move. The idea that you can tax high earners at will without changing their behavior is simply not supported by either economics or experience.

Billionaires are merely the most visible example of a much broader trend. Over the last decade, California has experienced a net loss of approximately 2.3 million residents to one of the other 49 states. That exodus is not confined to the ultra-wealthy. Middle-class families, retirees, and small business owners have all been voting with their feet, as we like to say, away from California.

The Golden State has natural advantages that most states can only envy: a temperate climate, a vast coastline of incredible beaches, world-renowned industries in entertainment and technology, and cultural influence that spans the globe. Yet despite many of these long-term advantages, California policymakers have managed to create a policy environment so burdensome that millions have concluded they are better off elsewhere.

The state levy is the second-highest income tax rate on high earners in the country, behind only Oregon. These rates are justified by proponents as necessary to support public services. But while many states have reduced personal income tax rates in the years following the pandemic, California has moved in the opposite direction.

Meanwhile, the leading destination for departing Californians has been Texas. The contrast is stark. Texas levies no personal income tax, maintains a low business tax, and continues to reduce taxes and protect right-to-work laws, even after major tax cuts. In Texas, the state boasted a budget surplus of more than $20 billion at the start of last year, while California has faced major budget deficits.

In the ALEC-Laffer State Economic Competitiveness Index, Texas stands near the top. Unsurprisingly, California lingers near the bottom. This divergence is not an accident. Incentives matter. States that penalize productivity and investment should not be surprised when both decline within their borders.

Consider education spending. Even in 2023, California spent an average of about 28% above the nation. Since 2002, it has increased education spending faster than any other state. Yet outcomes have not followed expenditures. In 2024, only 28% of eighth graders in California were proficient in reading and only 25% in math, both shockingly below national averages despite the high levels of spending growth.

This is a recurring pattern in public policy: the assumption that spending more is synonymous with achieving more. But money is an input, not an outcome. Without incentives for efficiency and accountability, additional funds can disappear into administrative bloat and institutional inertia without improving results for parents and students.

The broader fiscal picture tells a similar story. Between 2019 and 2024, California’s population declined. Over the same period, state spending—even after being adjusted for inflation, which was hefty during those years—grew by 20%. By contrast, Texas saw its population grow by roughly 8% during those same years. One might assume that such growth would require a commensurate increase in government spending. Yet, adjusted for inflation, Texas actually spent less in 2024 than it did in 2019.

Growth in population did not translate into unchecked growth in government in Texas. Per-person spending is now roughly three times higher in California than it is in Texas. And what are they getting for it?

These two state models illustrate a fundamental truth. Americans are free to compare policy regimes, not merely in theory but in practice. They can observe which states generate opportunity and which impose excessive costs. They can assess not only promises but actual results. And when dissatisfied, they can—and do—relocate.

A wealth tax in California may satisfy a desire to, quote, unquote, do something about inequality, but it does nothing to address the deeper structural issues driving residents away: high tax rates, expansive regulation, and spending that rises regardless of effectiveness. Indeed, by signaling that accumulated assets are fair game for extraordinary taxes, it may very well accelerate the very out-migration that has already undermined California’s revenue projections and its future.