Shortsighted billionaire tax would put a knife to California’s golden goose
Proposal would bring short-term bounty, and lots of bad PR
California may be headed toward killing the billionaire birds that lay the golden eggs needed to nourish this Golden
State.
The English fable about the farmer and his wife who foolishly whack their golden goose comes to mind when I think about the proposed billionaire tax in California.
The couple possessed a bird that laid a golden egg every morning, but they slaughtered it for one fat meal.
The billionaire tax — or wealth tax — would generate a one-time bounty for the state government of up to $100 billion collected over five years, according to its promoters. But its many critics say it would drive billionaires out of California, costing the state lots more in tax revenue over the long run.
These birds are capable of flying off to anywhere, after all.
Here’s how the nonpartisan Legislative Analyst’s Office summarizes the proposal’s fiscal effects:
■ “Temporary increase in state revenues … probably would add up to tens of billions of dollars spread over several years.”
■ “Likely ongoing decrease in state income tax revenues of hundreds of millions of dollars or more per year.”
The golden goose is replaced by a mud hen. Whether billionaires fly the coop or are forcibly penned in by the measure, as its drafters intend — and whatever the policy’s merits — it just seems like bad PR for California.
We might as well run TV ads and erect billboards along the
border proclaiming: “Welcome to California, the land of opportunity. Make a fortune so state politicians can grab a sizable chunk.”
We’ve already got by far the highest income tax rates in the nation, topping out at 13.3%. The top 1% of earners pay between 40% and 50% of the entire state income tax collected annually. The top 0.1% kick in about 20%.
California is infamous for its unfriendly business climate, with byzantine regulations and an agonizingly slow permitting system.
“It sends out the worst possible message to the people we need in the state, the people who produce jobs,” says Rob Lapsley, president of the California Business Roundtable.
Democratic strategist Garry South says: “Bleating about ‘tax the billionaires’ is a good applause line at Democratic gatherings, but it appears oblivious to the fact they’re already being taxed …
“Our revenue base is disproportionately dependent on capital gains and other income sources unique to the well-off.”
This wealth tax is not being pushed by Sacramento Democrats.
Gov. Gavin Newsom is adamantly opposed. “It is not something that will allow us to be competitive,” he says.
And the governor asserts: “You would have a windfall one time, and then over the years you would see a significant reduction in taxes because taxpayers will move.”
Most Democratic candidates for governor oppose the ballot initiative.
“Driving out the entrepreneurs and innovators who have enriched California is not the answer to the pressing societal question” of how to address the “growing concentration of wealth,” says the latest gubernatorial entry, San José Mayor Matt Mahan.
The initiative is being led by a labor organization: Service Employees International Union – United Healthcare Workers West, which represents 120,000 healthcare workers. It intends to spend up to
$14 million to collect nearly 875,000 voter signatures by June 24 to place the measure on the November statewide ballot.
It would impose a onetime 5% tax on the net worth of California’s 200plus billionaires, based on their wealth as of Jan. 1 this year. The tax would be due in 2027, but it could be paid in installments over five years.
That’s assuming state bureaucrats can even figure out the billionaires’ worth. And the new tax law isn’t tied up in courts for many years, as it surely would be.
The measure’s purpose is to make up for the billions of dollars in federal cuts to California healthcare programs, especially Medi-Cal. Of the total tax take, 90% would go to healthcare and 10% to education.
“If we don’t do something about [the federal cuts], we’re going to see devastating consequences,” says Suzanne Jimenez, the union’s chief of staff.
Unless the billionaires are taxed extra, she says, money will need to be seized from other programs — such as education and public safety — to salvage healthcare.
It’s just the opposite, critics argue: If billionaires flee the state to avoid the wealth tax, all programs will suffer in the long run because the golden geese no longer will be producing billions in annual tax revenue.
Actually, a better, more reliable solution than the billionaire tax for Democrats is to flip the House of Representatives in November. Win enough seats to seize control from Republicans. Maybe take over the Senate, too. Then restore adequate federal healthcare funding.
Some political infighters suspect that the union is using the threat of a ballot initiative to negotiate more healthcare money from the state budget.
“I think this whole thing is a bluff,” says Mike Murphy, a veteran political consultant who has been helping the opposition. “If you don’t want to see this thing on the ballot, make me happy by putting more money in the budget.
“But they picked the wrong time to rob an empty bank.”
The state government is running on red ink, with deficit estimates ranging from $3 billion (Newsom’s figure) to $18 billion (the legislative analyst’s). Even deeper holes are projected for the future.
Jimenez denies the measure is being used as a negotiating hammer.
“No,” she says. “Our focus is to qualify this for the ballot.”
If it does, there will probably be flocks of golden geese voting by absentee ballot in other states.