Tax the Rich, Watch Them Leave

California is a beautiful state blessed with rich natural resources and a booming tech industry.

It’s a shame they have the dumbest politicians.

In November, the Golden State will vote on a wealth tax.

It would be a “one time” tax of 5% on total billionaire wealth. Not on capital gains, mind you. A tax on net worth. This is a dangerous concept, as we’ll explore today.

Fleeing Billionaires

Thanks to the tech boom, California has (had) plenty of billionaires. But they are rapidly fleeing the state.

The California Tax Foundation estimates that $777 billion of wealth has already left. And that’s only publicly-announced departures.

Among the high-profile names who are leaving or have already left California are:

• Google co-founders Larry Page and Sergey Brin
• Oracle founder Larry Ellison
• Tesla and SpaceX founder Elon Musk
• Uber founder Travis Kalanick
• Billionaire investor David Sacks

Those are just some of the high-profile, wealthy entrepreneurs and investors leaving the state.

Over time, it would cost the state far more in lost revenue than is gained. These billionaires pay tens of millions annually in taxes, invest in local companies, and support massive numbers of high-paying jobs.

But it may happen anyway. Bettors on Polymarket give the wealth tax a 45% chance of passing. That’s up 23% from late last year.

All so billionaires will finally “pay their fair share”. But in the U.S., the top 10% of earners already pay 77% of income tax.

Source: Visual Capitalist

If this bill passes, it will undoubtedly accelerate the financial disaster in California.

And whenever the next recession hits, the “one time” wealth tax would certainly be extended to more people. “First they came for the billionaires, and I did nothing because I wasn’t a…”

The once-golden state is tarnishing and it’s sad to see. Crime is rampant in big cities due to Soros-funded District Attorneys letting perps off the hook for serious crimes. Homeless people get big benefits so they flock to the promised land.

Additionally, as Byron King highlighted this week, California has already closed most of its oil refineries and limited drilling. Diesel fuel is pushing $8 a gallon. And California’s reckless spending has blown a huge hole in the state’s budget.

A wealth tax would be the nail in the coffin.

Chase the Money Out

In 2000, France instituted a wealth tax. Every year, millionaires had to pay up to 1.5% of their net worth. And that was in addition to a 75% top income tax rate!

Needless to say, it was a disaster. At least 42,000 millionaires fled the country. They left for Switzerland, the U.K., and elsewhere.

Tax revenue fell. Entrepreneurs picked up shop and brought their businesses elsewhere.

Why do you think we don’t see many big companies come out of France these days? Because they’re taxed beyond belief, and they’ve chased all the business people out.

In 2017, France finally admitted defeat and killed the wealth tax. But the damage was already done. And tax rates remain ridiculously high, crushing entrepreneurs and growth.

Don’t Give Them an Inch

In 1939 only about 5% of Americans were subject to federal income tax.

By 1945, more than 60% were paying Uncle Sam a portion of their income.

This is how it works. Taxes rise to pay for some emergency, and don’t go down after it’s over.

Before you know it, civil servants are making $200k+ a year. Hiring gets out of control.

The story is playing out across the country.

But it’s particularly bad in deep blue states.

State Matters More Than Ever

Here in Maryland we have some of the highest taxes in the country. And they’re set to rise even more.

Over the past few years, two of my close friends have left for greener pastures in Florida and Texas. One is a surgeon, the other a CPA.

Once our kids are out of school, my wife and I will probably leave too. Paying state income on top of federal, sales, capital gains, and other taxes is beyond absurd. It would be one thing if we were getting amazing benefits from these sky-high levies.

But we’re not. The roads are full of potholes. Corruption runs deep at every level. We constantly have to fight against being re-districted out of our top school system.

The future of high-tax states looks bleak. With underfunded pensions, high debt, and soaring costs, it’s going to get worse.

Eventually we will see a painful reckoning at both federal and state levels. Spending will need to be slashed. Headcount deeply cut. Pension benefits and healthcare, unfortunately, also may need to be cut.

There’s no getting around it.

When that reckoning hits, it’ll be best to be in a fiscally-responsible, low-tax state. It’s unfortunate, but that’s where we’re at.