California warns billionaire tax could backfire as signature drive moves ahead

A tax idea stirring big emotions

California is once again at the center of a national money debate. This time, it’s about a proposed tax aimed squarely at billionaires living in the state. Supporters say it’s overdue. Critics warn it could backfire badly.

The proposal isn’t law yet. It’s still in the early stage, where supporters are collecting signatures to put it on the 2026 ballot. But even now, the idea is already triggering reactions from politicians, investors, and wealthy residents across the country.

What the billionaire tax actually is

The proposal, known as the 2026 Billionaire Tax Act, would levy a 5% wealth tax on Californians with net worths over $1 billion, affecting about a few hundred California billionaires.

The tax applied to residents on January 1, 2026, based on their 2026 net worth, with payments due in 2027. Real estate, pensions, and retirement accounts are excluded.

Supporters argue the state’s billionaire wealth is enormous and highly concentrated, even though exact totals are hard to pin down. A five-year installment option is available, though it comes with added costs.

Why the Attorney General raised concerns

As part of the ballot process, the Attorney General issues the official title and summary, and the state also publishes a fiscal estimate. That fiscal estimate says the tax would likely bring in tens of billions of dollars temporarily.

It also warns of a likely ongoing drop in state income tax revenue of hundreds of millions of dollars (or more) per year if some billionaires change behavior or move out of state.

Short-term gain, long-term risk

According to the state’s own analysis, the wealth tax would create a temporary revenue boost. That money would arrive over several years, mainly right after the tax takes effect. On paper, it looks like a financial win.

The concern is what happens after. If even a small number of billionaires leave California, the state could lose far more in income taxes than it gains from the one-time wealth tax. That’s the trade-off voters are being asked to consider.

Where the money would go

Supporters of the tax say the revenue would be used for the public good. The fiscal estimate says 90% must go to public health care services, while the remaining 10% covers administration, plus education and food assistance.

Labor union SEIU-United Healthcare Workers West is backing the initiative. They argue the funds could help offset federal healthcare cuts. Critics, however, question whether the revenue would remain stable long enough to fund long-term programs.

The signature race now underway

Before voters ever see this on a ballot, supporters must clear a major hurdle. They need 874,641 signatures from registered California voters, and the current filing deadline is June 24, 2026.

Signature drives take time, money, and volunteers. If supporters fall short, the proposal dies quietly. If they succeed, the debate will move from policy circles into everyday conversations at kitchen tables across the state.

Bernie Sanders enters the picture

Senator Bernie Sanders of Vermont has thrown his full support behind the California effort. He called it a model for the entire country. On social media, he praised the idea of taxing what he calls “economic royalists.”

Sanders said he wants to push for a nationwide version, calling California’s effort a model other states could emulate. What began as a state issue is now being framed as a test case for national tax reform.

A fiery response from Ro Khanna

California Congressman Ro Khanna also supports the tax. He recently sparked controversy by dismissing threats from tech billionaires who say they’d leave the state.

Khanna argued that California shouldn’t bend policy to please the ultra-rich. Supporters applauded his stance. Critics said it downplays the economic reality of losing high-earning residents and the tax revenue they bring with them.

Billionaires push back hard

Not everyone is convinced this tax is fair or smart. Hedge fund billionaire Bill Ackman called the proposal “catastrophic” for California. He warned that founders, entrepreneurs, and investors would relocate quickly.

Ackman says California already struggles with high taxes and business costs. Adding a wealth tax, he argues, would accelerate an exodus to states like Texas and Florida. Those states actively court wealthy residents with lower tax burdens.

An alternative idea gains traction

Ackman doesn’t deny that the ultra-wealthy often avoid taxes. Instead, he points to a loophole known as “Buy, Borrow, Die.” It allows billionaires to borrow against stock instead of selling it, avoiding capital gains taxes.

He suggests taxing those loans as income. That approach has quietly gained support from other wealthy figures. Some say it would raise revenue without driving residents out of high-tax states like California.

Signs of an early billionaire exit

Even before the tax appears on a ballot, some wealthy figures are making moves. PayPal co-founder Peter Thiel is opening a new office in Miami.

Some estimates suggest the bill for an ultra-wealthy individual could reach the low billions, but the real number would depend on year-end valuations and other variables.

Florida has no state income tax and actively welcomes tech investors. Moves like Thiel’s fuel concerns that California could lose not just tax revenue, but influence in tech and finance as well.

Celebrity attorney Alex Spiro weighs in

Celebrity attorney Alex Spiro, who has represented Elon Musk and other high-profile clients, sent a letter urging Gov. Gavin Newsom to oppose the proposal, warning his clients could relocate if it passes.

The letter said several billionaire clients would permanently relocate if the tax passes. That message landed hard in Sacramento, where leaders are already grappling with budget pressure and population decline.

Even Newsom isn’t convinced

Governor Gavin Newsom has expressed skepticism about the wealth tax. While he supports progressive taxation, he has warned that this approach could hurt California’s economy long-term.

Newsom has emphasized keeping California competitive. With other states offering lower taxes and business incentives, the governor worries this proposal could weaken the state’s position as a hub for innovation and startups.

Billionaires eye the exit if California’s wealth tax becomes reality, and the economic ripple effects could reach far beyond California.

What voters are really deciding

At its core, this debate isn’t just about billionaires. It’s about how states fund public services without shrinking their tax base. California voters may soon be asked whether the risk is worth the reward.

For now, the billionaire tax remains a proposal. Its future depends on signatures, court challenges, and public opinion. What happens next could shape tax policy debates far beyond California’s borders.

In other news, scary scenes unfold across California as winter storm triggers catastrophic flooding.

What do you think? Should California tax billionaires to fund public services, or does the risk of losing jobs and investment outweigh the potential revenue? Share your thoughts in the comments.

This slideshow was made with AI assistance and human editing.

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