Concentration of Wealth, Not Prop 40, Is Crushing California

The threat to California’s middle class is not Proposition 40; it is the concentration of wealth and the tax escape routes that let it grow unchecked. In his National Review column “Who Wants to Get Rid of Billionaires?”, John Fund argues that the proposed one-time 5 percent wealth tax on California residents worth more than $1 billion will drive the rich away and gut the state’s revenue. He treats the proposal as the threat and billionaire flight as inevitable. He gets the cause backward.

Start with Fund’s own numbers. Six billionaires left. California has roughly 200. That means about 97 percent remained. Yet the Hoover Institution estimates that those six departures removed $536 billion from the tax base, nearly 30 percent of the aggregate wealth held by the state’s billionaires.

Read that again.

Six people own almost a third of the wealth held by two hundred. That is not a policy success story. That is the disease. Fund treats it as a patient to protect.

Imagine a town of fifty homes. Two neighbors own thirty of them. The other forty-eight families cannot outbid them for the remaining twenty. Every time the two buy another block, rents rise, commutes lengthen, and the school loses a teacher because the tax base bends toward private amenities and away from public goods.

That is California.

The state has among the worst housing affordability in the country. In major metropolitan areas, median homes require top-ten-percent household incomes just to qualify for a mortgage. This was true before Proposition 40 qualified for the ballot. It was true before any billionaire packed a suitcase.

Fund’s argument is that the wealth tax will lose money because the rich will leave. Fine. That concern is real. A wealth tax with a hard retroactive trigger can accelerate exits, and retroactive taxation is bad policy. If the measure reaches back to January 1, 2026 and taxes people who made decisions under a different set of rules, that provision should be stripped. You do not change the rules after the whistle has blown.

That is a fixable drafting problem. It is not an indictment of the underlying idea.

The Hoover estimate is empirical, not invented. The argument is with Fund’s conclusion. The fact that six people can carry away nearly a third of California’s billionaire wealth does not prove California should surrender. It proves the tax base is dangerously concentrated.

The base was already loose.

California’s wealthiest residents have had exit ramps for years. Operating companies can be held through Delaware and Cayman holding companies, so gains on a sale never necessarily land in California. Much of the income in the billionaire class comes through carried interest. The federal code taxes that income at the 23.8 percent capital-gains rate rather than the 37 percent top labor-income rate, and California piggybacks on the federal base. Billionaires can hold California real estate under Proposition 13, with property taxes capped at 1 percent and assessments frozen at purchase.

Long before Proposition 40 had a number, California’s wealthiest residents had a dozen ways to turn a California-source fortune into something the state never sees.

The flight Fund predicts is not a future event caused by Proposition 40. It is a present condition his column is pretending to discover.

The six departures he names — Sergey Brin, Larry Page, Peter Thiel, Steven Spielberg, John Hankey, and David Sacks — are departures from a tax base that had been bleeding for years, with or without this measure. The $536 billion is real money. It is also a snapshot of wealth that, for many of those residents, stopped being on California’s books long before Proposition 40 appeared on a ballot.

This is the suppressed fact in Fund’s argument: the state is not choosing between a stable tax base and a wealth tax. It is choosing between a tax code with escape hatches and a tax code that closes some of them.

The carried-interest break alone is one of the largest tax advantages available to California’s billionaire class. Closing it could raise meaningful state revenue, in the same range as the wealth tax’s projected take before accounting for flight. A state-level clawback on taxpayers who change domicile within five years of a major California-source gain would impose a real cost on the exit that a wealth tax alone does not. A split-roll property tax ending Proposition 13’s commercial loophole would broaden the base without making one billionaire’s residence the center of the universe.

Fund considers none of these. He considers only the proposal that fits his narrative: a wealth tax blamed for a problem the rest of the tax code created.

The usual incantation is that California will chase away the people who create wealth. But six people out of two hundred hold nearly a third of the wealth. If the state’s prosperity depends on making those six feel permanently untouchable, prosperity has acquired a very strange definition.

Fund also frames Proposition 40 as a power play by union boss Dave Regan, whose alleged strong-arming of other union leaders is ugly and whose legal problems deserve their own scrutiny. But the question on the ballot is not whether Dave Regan is a good person. The question is whether a state with California’s inequality should try, once, to capture some of the wealth accumulated far beyond any individual’s contribution.

Fund wants you to look at the messenger and ignore the message.

That is a choice, not an argument.

California has a revenue problem masquerading as a spending problem. Its tax base depends heavily on capital gains and high incomes that boom in good years and collapse in bad ones. A targeted levy on billionaires is one way to widen that base. You can argue about the rate, the constitutional design, the transition rules, the carried-interest treatment, and the enforcement mechanism. Those are engineering questions.

What you cannot honestly argue is that the status quo is working.

The status quo is a state where teachers commute for hours to staff classrooms in the same zip codes where billionaires’ landscapers mow lawns. It is a state where housing is scarce, public infrastructure is strained, and immense private fortunes can change legal residence faster than a family can find an affordable apartment.

So build a clean, prospective wealth instrument. No retroactivity. No constitutional ambiguity. A modest levy designed to survive legal challenge and fund the public goods that make California worth living in: schools, housing infrastructure, and transit. Close the carried-interest escape route. Add a state clawback for major California-source gains. End the commercial loophole in Proposition 13. Pair revenue reform with zoning changes that would actually bring housing costs down.

Do not let the perfect be the enemy of the revenue.

The six billionaires who left were going to leave anyway. They leave. They come back. They move their paperwork and keep their houses. The question is not whether the ultra-wealthy are here.

The question is whether the rest of California can afford to stay.