Labor unions in California are playing a high-stakes game of chicken with the state's billionaire class, and they are losing before the clock even starts. The recent headlines trumpeting a "compromise"—where the union behind a proposed billionaire tax offers to lower the proposed rate—is not a sign of pragmatic negotiation. It is an admission of failure.
The media loves to frame this as a classic labor-versus-capital showdown. They paint a picture of greedy tycoons hoarding wealth and reasonable labor leaders offering a olive branch by trimming a few basis points off the tax rate. It makes for great theater. It is also entirely detached from economic reality. If you liked this article, you should check out: this related article.
Here is what the standard commentary misses: tinkering with the top line of a wealth tax does not change the structural rot of the policy. Whether you tax a billionaire's unrealized capital gains at 1.5% or 1.1%, you are still trying to squeeze blood from a highly mobile, incredibly liquid stone.
The Myth of the Compliant Billionaire
The lazy consensus among progressive policy advocates is that billionaires are static fixtures of the state geography. The assumption is that because a tech founder or venture capitalist built their empire in Silicon Valley, they will quietly absorb a new tax penalty out of some vague sense of loyalty to California. For another look on this development, see the recent coverage from Reuters Business.
They won't. I have sat in boardrooms where these exact migration decisions are evaluated. It takes less than 48 hours to shift primary residency to Nevada, Texas, or Florida.
When a state threatens a wealth tax, it does not just tax the rich; it triggers an immediate asset flight. This is not a hypothetical. Look at the historical precedent in Europe. In 1990, twelve European countries had wealth taxes. By the late 2010s, most had repealed them. Why? Because the administrative cost of tracking down fluctuating asset values exceeded the revenue generated, all while driving high earners across borders. France’s ISF (solidarity tax on wealth) famously caused an exodus of capital that forced the country to radically pivot.
Offering to "reduce the rate" is like a mugger offering to take your watch but leave your wallet. It does not make the encounter any more appealing, and it certainly does not convince you to stay in the neighborhood.
Valuing the Unvaluable
Let us look at the actual mechanics of what these tax bills propose. They do not just target cash in a bank account. They target net worth, which includes illiquid shares, private equity holdings, and intellectual property.
How do you accurately tax the net worth of a founder whose company is valued at $10 billion on paper but has zero revenue?
- The Valuation Nightmare: Private market valuations are volatile. A company worth billions in a funding round in March can be worthless by November.
- The Liquidity Trap: To pay a annual tax on unrealized wealth, an executive must sell shares. Selling shares triggers a traditional capital gains tax, dilutes ownership, and signals panic to public markets.
- The Administrative Sunk Cost: The state must build a massive bureaucratic apparatus just to appraise art, real estate, and private equity portfolios annually.
Imagine a scenario where the state audits a venture capitalist’s portfolio, declares a 30% increase in paper value based on a subjective appraisal, and demands an eight-figure check. The investor has to dump stock to pay the bill. Multiply this across hundreds of high-net-worth individuals, and you get artificially depressed stock prices and stalled local investment.
Lowering the proposed tax rate from 1.5% to 1.1% does absolutely nothing to solve these mechanical flaws. It just means the state will spend the same amount of administrative energy chasing a smaller pot of gold.
The Revenue Volatility Trap
California already suffers from a hyper-dependence on its wealthiest residents. The top 1% of earners pay nearly half of the state's personal income tax revenue. This makes the state budget look like a tech-heavy hedge fund. When the markets boom, the state runs massive surpluses. When the markets crash, the state faces catastrophic deficits.
Adding a wealth tax—even a diluted one—doubles down on this volatility. It ties the funding of public infrastructure, schools, and healthcare to the daily fluctuations of Wall Street and Sand Hill Road.
If unions want stable funding for public services, pinning their hopes on the volatile net worth of a few hundred individuals is the worst possible strategy. When those individuals move, the tax base collapses, and the burden shifts directly downward to the middle class.
The Real Winner of the Wealth Tax Debate
The ultimate irony of the union's strategy is that it benefits the exact consultants, lawyers, and wealth managers they claim to despise. The moment a wealth tax passes—at any percentage—it opens up a gold rush for the tax avoidance industry.
The super-rich do not pay taxes like ordinary W-2 employees. They use family offices, generation-skipping trusts, offshore holding companies, and sophisticated debt instruments to shield their capital. A slightly lower tax rate does not make billionaires say, "Oh well, 1.1% is low enough that I won't bother calling my attorney." It just shifts the math on how much they are willing to spend to legally bypass the system.
Stop trying to fix a broken revenue model by shaving off a fraction of a percent. The problem is not the rate. The problem is the premise. If you want to fund a state effectively, you create a broad, stable, and predictable tax base that encourages growth, rather than a punitive, unworkable system that drives your biggest capital allocators out of the room.
Pack your bags. The billionaires already have.
