Commentary

California voters will wake up on Nov. 3, 2026, to vote on the nation’s first statewide tax on net worth.

Proponents of the so-called Billionaires Tax Initiative estimate that this “one-time” levy would raise roughly $100 billion from approximately 200 California residents as of Jan. 1, 2026. Based on public estimates of net worth, just four individuals would be responsible for nearly $40 billion of that total.

The mechanics of the tax are unusual and easily misunderstood. The first $1 billion of an affected resident’s net worth is exempt. The next $100 million is subject to a 55 percent marginal tax rate, producing a $55 million tax bill. Net worth above $1.1 billion is then taxed at 5 percent.

None of the 200 affected residents will have tens of millions of dollars sitting idle in cash. To pay the tax, they will be forced to sell assets—incurring federal and California income taxes—before paying the wealth tax itself. This sharply distinguishes the proposal from the federal estate tax, which is imposed at death and is not generally accompanied by income taxes triggered by asset sales.

Consider a straightforward example. A resident holding zero-basis founder shares would need to sell roughly $88 million of stock to raise the $55 million required to pay the tax on the first $100 million above $1 billion. At current federal and California rates, that sale would generate approximately $32 million in income taxes before a single dollar of wealth tax is paid. If the funds used to pay the wealth tax come from the exercise of non-qualified stock options or the sale of non-capital assets, the income tax cost can be even higher. In those circumstances, the combined tax burden exceeds the wealth tax itself. That is confiscatory in effect.

Nor does the problem end there. Net worth above $1.1 billion is taxed at 5 percent, but because residents must again liquidate assets to pay that tax, the effective tax rate on the required sales substantially exceeds the stated rate once income taxes are included. What is advertised as a modest wealth levy quickly becomes an escalating forced-liquidation regime.

Beyond voter approval, the tax would also have to survive judicial scrutiny—a steep challenge. The initiative labels the levy an excise tax, but excise taxes apply to specific activities or transactions, not to the passive ownership of accumulated wealth. If the tax is not a valid excise tax, it is a tax on property, including intangible assets, and immediately collides with long-standing constraints in the California Constitution governing property taxation, uniformity, and voter-approved tax limitations.

Additional constitutional vulnerabilities compound the problem. The initiative invites litigation over arbitrary valuation rules, irrational classifications, and inadequate appeal rights. Particularly troubling is the tax’s retroactivity. Voters would decide in November 2026 to impose a tax based on where an individual resided on Jan. 1 of that same year. Retroactive taxation of this magnitude for a new tax is rare, legally suspect, and destabilizing by design.

If the initiative passes, its constitutionality will be litigated for years. Many of the individuals subject to the tax are unlikely to wait for the outcome. Faced with an unprecedented levy, forced asset sales, and retroactive exposure, a meaningful number will relocate to states with clearer and more predictable tax regimes. That risk is not theoretical. California already relies heavily on a narrow tax base: The top 1 percent of income earners account for roughly 40 percent of the state’s personal income tax revenue.

It would not take many departures at the top for the fiscal consequences to ripple far beyond the targeted group, affecting state and local revenues relied upon by all Californians. A tax aimed at a tiny population may prove to be one of the most consequential—and risky—revenue experiments California voters have ever been asked to approve.