California voters are likely to face a referendum in November that would impose a “one-time” 5% wealth tax on the state’s 200 or so billionaires. It’s more than an astonishingly damaging measure; it’s an ugly result of America’s long-term destruction of the dollar.
The levy would apply to all their financial assets, such as stocks, bonds and privately owned businesses, as well as such intellectual property as patents, collectibles like baseball cards and, of course, artwork. Unions are actively collecting the necessary signatures to get the initiative on the ballot.
The tax would be retroactive. Anything owned on January 1 of this year would be hit, as would any assets transferred to trusts. Draconian penalties would be applied to both taxpayer and appraiser if state bureaucrats determine an asset was undervalued.
The money confiscated by this tax would be used mainly for health care. Needless to say, such a tax, if it survived court challenges, would be a disaster. Capital destruction always is.
The possibility of such a confiscatory act is already having a detrimental impact. A study by the Hoover Institution at Stanford University found that six individuals with a total net worth of more than $500 billion have fled California. Many more will follow. The Hoover economists calculate that the revenue actually raised will be less than half of what the referendum proponents claim. Future losses of state income tax receipts will be in the tens of billions of dollars. They also found that the way the referendum is worded will open the door to future raids on people’s wealth.
Proponents confuse income with wealth. Unrealized capital gains aren’t income.
California’s top 1% of income earners pay almost half of the state’s income tax revenue. Not only billionaires but many well-to-do people are currently fleeing this grossly overtaxed state. This means big budget trouble in the future. California thrives on successful startups, and this tax would be devastating for incubating tomorrow’s Metas.
These and other powerful and practical objections are persuasive, but most voters tell pollsters they’ll support the tax. Which raises the obvious question: Why?
The immediate answer is a deep resentment of billionaires who seem to get wealthier and wealthier while tens of millions of people are falling behind or are barely keeping ahead of still-rising costs. Blaring nonstop coverage of the very well-to-do fans resentment as many people struggle to pay bills. Even though most benefit from a strong stock market (temporarily derailed by the Iran war)—if indirectly by the funding of their future pensions—many people think the market benefits only those at the top of the financial pyramid.
This gets to an utterly underappreciated villain of the affordability crisis: inflation.
In a hyperinflation such as Germany experienced in the early 1920s, disastrous results appear quickly—lawlessness, the feeling that traditional ways of getting ahead no longer apply and that speculation and financial manipulation are rewarded rather than productive work. That stokes the sense of unfairness. While not as dramatic, the social damage from a long-term weakening of a currency can be severe.
The dollar has been falling in value since the U.S. went off the gold standard in the early 1970s—sometimes very slowly, other times more precipitously. The deleterious decline in social trust that inflation engenders can take place over a long period of time. The Occupy Wall Street movement 15 years ago was one manifestation. The resentment of billionaires today is another.
The cures are straightforward. First, stop the monetary inflation by keeping the dollar’s value stable. Until the 1970s, the gold standard did that job. However, given the unreasoning hostility of almost all economists to gold today, we’ll have to settle for proclaiming a stable dollar as the goal and simply pay close attention to the price of gold.
The other cure is pursuing more tax cuts and deregulation—and staying away from new tariffs after the Supreme Court put the kibosh on those imposed by executive order.
