California wrote a tax on paper wealth, gave billionaires a date to leave, and then called the design failure a flight of capital. In “California’s Wealth Tax Boomerang”, The Wall Street Journal’s Editorial Board argues that Proposition 40’s one-time 5% tax on residents with more than $1 billion in net worth would trigger departures and produce a forecast net revenue loss of $38.9 billion. Seven billionaires holding $539.9 billion left California after the initiative was filed last autumn and before the January 1, 2026 residency date. Their departures erased nearly 30 percent of the measure’s estimated $1.9 trillion potential tax base. The Board mistakes one broken instrument for a verdict against taxing concentrated wealth.
The seven departures are serious. They show that the revenue estimate was too optimistic. They do not show that $539.9 billion in cash, companies, jobs, and taxable activity vanished when their owners changed addresses. A tax residence is not a factory closure, a land sale, or the end of every connection to the state. Moving an address is not liquidation.
Those departures were not weather. They were a response to a date the legislature chose. The design gave the people most likely to leave a visible deadline, and it rewarded them for watching closely enough to use it. Flight is a mechanism this design pays for. It is not the root defect.
The Board’s strongest point is also its narrowest. California’s billionaires pay between $3.3 billion and $5.8 billion a year in state income taxes, and the economists behind the op-ed forecast that the reduced payments following departures would exceed the revenue from the wealth tax. Fine. That makes Proposition 40 a bad fiscal instrument. It does not prove that every version of a wealth tax must fail. A bad estimate can still identify a bad design.
The $38.9 billion figure is not money already missing from California’s accounts. It is the output of a forecast built around departures, court decisions, foregone income-tax payments, and the time value of money. The op-ed sketches the result but leaves much of the machinery hidden. It rolls several possible futures into one blended loss number without showing what each court outcome produces.
The financial-security comparison requires plain arithmetic. The Board says the state would receive one large payment now in exchange for future income-tax payments. Correct. The income tax produces a stream over many years. Later dollars must be converted into present dollars before the two can be compared, and the forecast must account for how people change their behavior in either world. The op-ed does not give readers the time horizon or discount rate behind its $38.9 billion claim.
A forecast, not a loss. A projection, not a verdict. A number in search of a conclusion.
I am not against taxing wealth. I am against pretending a balance sheet is a cash drawer and calling the overdraft policy failure.
The design gives its targets plenty to exploit. It taxes net worth on a set date. A private company can carry a large paper value without producing cash. Its owner cannot sell every asset at the quoted price. To pay, the owner may have to sell, borrow, move, or fight. Those choices can damage a business and its workers before the state collects a dime. This is not an edge case. It is the basic problem with asking for a percentage of paper wealth.
Tax the spreadsheet. Punish the enterprise.
Retroactivity adds a second escape hatch. People can see a tax coming, change residence, and then argue that applying it retroactively cannot survive court review. The Board calls this a legal vulnerability. It is also the incentive at the center of the design. The taxpayer gets two dates: one for leaving and another for going to court.
The op-ed identifies at least eight legal vulnerabilities, including the treatment of worldwide assets and dubious valuation methods for private holdings. Those problems support rewriting the measure. They do not support exempting extraordinary wealth from taxation.
Now look at the base. Supporters pitched $100 billion from 200 billionaires. Seven departures erased nearly 30 percent of the estimated total. That makes the plan a wager on 200 addresses. The Board identifies the concentration, then treats it as a verdict on the instrument that exposed it.
Imagine a store that expects 1,000 customers. Seven of its biggest shoppers leave before a new fee begins. The store’s forecast was wrong. That does not prove the fee loses money. It proves the store was exposed to a handful of customers. California has a $100 billion plan resting on 200 people and a residency rule that announces itself.
The Board can condemn Proposition 40. It cannot turn a defective instrument into proof that taxing concentrated wealth must always fail. To carry that broader conclusion, the Board must show that prospective rules, clearer valuations, transaction-based collection, and a broader revenue base cannot work. It has not done that. Rule out the repair, or retract the verdict.
California should reject Proposition 40 as written.
Make the levy prospective. Publish objective residency rules and a residency date. Give taxpayers a clear transition year. End retroactive residency tests. Set a separate valuation date and publish the valuation rules before the clock starts. Define the covered assets. Use consistent rules for private holdings, with independent review when taxpayers dispute a value and a clear path to appeal. Then publish a revenue estimate under each plausible court ruling. If a court limits the measure to future years, the rules and revenue change. If it blocks the measure, there is no wealth-tax revenue to collect. If the measure survives, California collects something and loses some income-tax payments. One dark blended number does not substitute for those accounts.
Then build the next measure around money that actually changes hands and activity that actually occurs. Tax capital gains when they are realized. Tax inheritances when wealth changes hands. Tax business profits and high incomes under rules that follow the activity. Make payment follow the sale, the dividend, or the paycheck. Close corporate avoidance schemes. Improve property-tax collection to recover leakage the state already fails to capture.
Those are harder policies. They also put a value on money California can actually collect.
A billionaire’s wealth may remain stock, real estate, or a private stake after the owner changes an address. The value can stay in California even when the owner does not. The income it creates can still be taxed without giving the owner a visible deadline tied to the residency date. A sound revenue system does not make the state’s budget depend on whether one billionaire—or 200 of them—keeps California mailing addresses.
So the Board can have its boomerang. The better answer is to build a durable California revenue system with clear rules, defensible valuations, and a base broad enough that residence choices cannot decide the state’s finances. Proposition 40 should be judged by the cash it lawfully collects, not by the ugliest forecast the Board can assemble.
California drafted a bad tax, handed the wealthy an escape date, and then acted surprised when they used it. Reject Proposition 40 as written. Collect the money when it moves.