A proposed tax targeting California's wealthiest residents is drawing strong support from likely voters, but critics warn it would discourage investment and trigger an exodus of high-income earners and businesses from the state.
"I think it's a really economically disastrous idea," Adam Michel, director of tax policy studies at the Cato Institute, told Fox News Digital. "It is both diagnosing the problem incorrectly and also won't fix the problem that is being diagnosed."
The "2026 California Billionaire Tax Act" would impose a one-time tax equal to 5% on the net worth on individuals making above $1 billion, according to California’s Legislative Analyst's Office (LAO). Covered assets would include businesses, securities, art, collectibles and intellectual property.
The measure would not count real estate someone owns in their own name (or through a revocable trust), but real estate held through a company they own could still factor into the tax because it can raise the value of that business.
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Supporters — including SEIU-United Healthcare Workers West (SEIU-UHW) — say the measure is an emergency response to save the state's healthcare system from "collapse" due to potential federal cuts.
According to the LAO analysis, "90 percent of the money would have to be spent on health care services for the public" while the remainder would go toward administrative costs, education and food assistance.
However, Michel says that wealth taxes don’t work in practice, arguing they weaken incentives to build businesses, create complicated administrative headaches and have generated disappointing revenue in countries that have tried them.
He also says they rest on a flawed "fixed pie" view of the economy that assumes wealth can simply be redistributed through taxation, but in actuality results in slower growth and a worse outcome for everyone.
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Michel also said a wealth tax differs from an income tax because it is assessed on accumulated assets rather than annual earnings and can translate to a much higher burden on business owners.
If a business earns anything less than a 5% return, every single dollar of profit is taxed, he explained, translating into an income-tax rate at or above 100%, leaving no incentive for an entrepreneur to grow and maintain that asset.
Michel noted the proposal has even drawn opposition from Gov. Gavin Newsom.
"He's very aware of the fact that this proposal will actually lead to an exodus of the California tax base," he said.
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Michel cautioned the damage wouldn't be limited to the roughly 200 billionaires targeted by the initiative. Because most wealth is held in "productive assets" like stock in companies, real estate and machinery, he warned the tax would penalize the investments that drive the broader economy.
"We will get less housing, we will get less investment in machinery and equipment, we'll get less investment in new companies," Michel said. "That ultimately makes everyone worse off."
California already has the most progressive tax system in the industrialized world, according to the Fraser Institute.
Wealth taxes have been tried around the world and failed, he pointed out, and only a few OECD countries still use them since their peak in the 1990s. In Spain, what was proposed as a temporary one-time levy eventually became a permanent tax on the wealthy. The same thing could happen in California, he warned.
"States like California have an insatiable hunger for taking other people's money," he told Fox News Digital. "And if they're successful this time, there's nothing stopping them from renewing this tax in future years."
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Michel added that the threat alone of it returning would encourage high-income residents to leave the state.
The bill's sponsors at the SEIU-United Healthcare Workers West say it is about making billionaires pay their "fair share."
"California’s billionaires pay much lower tax rates than what working families pay out of every paycheck. And soon, massive federal healthcare funding cuts will collapse key parts of the California healthcare system," Suzanne Jimenez, chief of staff at SEIU-UHW, told Fox News Digital.
She warned "local hospitals and emergency rooms will shut their doors forever" unless voters approve the Billionaire Tax so "billionaires pay their fair share" through a "one-time emergency 5% tax."
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She rejected "sensationalized claims" from "a handful of billionaires and their highly-paid consultants" that there’s been an exodus from California before the Jan. 1, 2026, residency deadline. Citing "a lack of public reports or confirmations," she says it "does not appear to be true," and that "the overwhelming majority" of roughly 200 billionaires "appear to have opted to remain."
Jimenez said nurses, healthcare workers, teachers and firefighters "pay taxes on nearly every dollar they earn," and argues that without the measure, "higher healthcare costs and higher taxes will be shifted onto millions of Californians" already facing "skyrocketing healthcare and prescription costs."
She called the debate a "convenient distraction" while her union’s "120,000 healthcare workers" stay focused on keeping hospitals and ERs open for "California’s 40 million residents."
"While these outlandish claims are a convenient distraction for a small number of billionaires, the 120,000 healthcare workers of our union remain focused on keeping California’s hospitals and ERs open for California’s 40 million residents who rely on them," she added.
Even though the proposal is still in the signature-gathering phase to qualify for the November ballot, it's drawn strong support from likely voters, according to new polling. A February 2026 Nestpoint survey found 60% of likely voters back the wealth tax, even as a majority of those same respondents say the move would spark a business exodus and cost local jobs.
Fox News' Kristen Altus contributed to this report.
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