California’s 5% wealth tax and the limits of government

Billionaires do not need another sentimental defence. A vast fortune is neither proof of virtue nor an exemption from contributing to the society that makes private enterprise possible. Courts, infrastructure, education and public order have economic value. Wealth should buy neither immunity from taxation nor privileged access to the people who write the rules.

But the public deserves something better than a contest between billionaire self-interest and government self-exoneration. A taxpayer’s ability to pay does not settle whether a particular tax is justified. And disliking the people who would pay it does not remove the obligation to examine the power being created.

California’s proposed 5% wealth tax brings that distinction into focus. Proposition 40 is on the November 3, 2026 ballot. As of October 25, it remains a proposal, supported by SEIU United Healthcare Workers West, rather than an enacted tax. It is a voter initiative, not evidence that every part of California’s government supports it. California Secretary of State

The measure would impose a one-time levy on covered billionaire wealth, linked to California residence on January 1, 2026, with payment due in 2027. Real estate, pensions and retirement accounts would generally be excluded. Ninety percent of the proceeds would support healthcare. The official analysis anticipates tens of billions of dollars in temporary revenue, alongside a possible continuing reduction in income-tax receipts of less than $1 billion annually as taxpayers respond. These are estimates, not money already collected. Official voter analysis

The 5% applies to the taxable stock of wealth. It is not a 5% charge on a year’s investment return. For individuals, the rate phases in between $1 billion and $1.1 billion. A person with $2 billion of taxable net worth at the full rate would therefore face a $100 million charge, before applicable adjustments. The proposal specifies a December 31, 2026 valuation date. Proposed law, sections 50301 and 50308

The measure also exempts its revenue from existing constitutional spending limits and school-funding requirements. Voters are therefore being asked to approve both a new claim on wealth and exceptions to rules governing the proceeds. Official voter analysis

A billionaire can afford a great deal. That observation answers very little about the appropriate boundary of government.

Democratic government necessarily involves voting on taxes, including substantial ones. There is nothing inherently illegitimate about that. The harder question is whether an electoral majority’s approval supplies a sufficient justification for any burden placed on a small minority. Predictability, proportionality, equal treatment and constitutional limits still matter.

The January residency date is particularly significant. Voters would make their decision in November using a connection established ten months earlier. The concern is the reliability of the rules under which people make decisions about where to live and build a business. A system becomes harder to trust when a past connection can acquire a substantial new financial consequence.

California also needs to explain its spending.

The state’s enacted 2026–27 plan provides approximately $351.7 billion in state-funded expenditure, including bond funds and excluding federal funds. General Fund spending alone is about $251.5 billion. Its three largest General Fund taxes are forecast to generate $226.4 billion. Nevertheless, the Legislative Analyst’s Office reports an administration-estimated operating deficit of $18.5 billion for the year. The enacted budget balances across years partly by using accumulated balances; that does not eliminate the annual mismatch. LAO spending-plan overview

Those figures describe a government with enormous resources and substantial obligations. A large revenue total does not prove that every service is adequately financed. It does establish that “we need more money” is an incomplete account of the problem.

The growth deserves scrutiny. In April, the LAO examined the rise in General Fund spending from $146 billion in 2019–20 to $248 billion in the governor’s then-proposed 2026–27 budget. Spending growth exceeded inflation and population growth. The explanation was more complicated than administrative extravagance: healthcare demand, programme utilisation, ageing, education formulas and the cost of sustaining existing services all mattered. Roughly 80% of the increase in local assistance, one major category, maintained services rather than expanded them. LAO analysis of spending growth

That qualification strengthens the case for reform. If existing commitments repeatedly grow faster than dependable revenue, a government must examine the commitments, delivery costs and funding structure. Labelling expenditure “ongoing” does not exempt it from judgment. Nor does a worthy programme become efficient simply because its beneficiaries need help.

California’s homelessness record offers a concrete example. A 2024 state audit noted nearly $24 billion allocated to homelessness and housing over five fiscal years. Of five programmes examined, two appeared cost-effective; three lacked sufficient outcome information for the auditors to assess their cost-effectiveness. That finding does not mean $24 billion disappeared. It means the state had committed substantial resources without adequate evidence to judge important parts of the effort. California State Auditor

A state willing to scrutinise private wealth should be at least as determined to measure what public expenditure achieves.

The funding design raises a further problem. A one-time levy can finance a temporary response to a crisis. It cannot permanently reconcile recurring promises with recurring revenue. The healthcare needs may be real, and federal funding reductions are part of the proponents’ case. But a temporary injection still requires an explanation of what happens when the money runs out.

New York City offers a related lesson through a different set of taxes.

The city’s resident income-tax schedule already reaches 3.876%, on top of state income tax, whose highest statutory rate is 10.9%. These are marginal rates with different thresholds, not the percentage every resident pays on all income. Mayor Zohran Mamdani advocated an additional two percentage points for New Yorkers earning more than $1 million. That proposal should be distinguished from the existing rate schedule. New York tax schedules, mayor’s January remarks

More revealing was the alternative presented in February. Without new revenue authority, the mayor’s preliminary budget assumed a 9.5% increase in property-tax rates, projected to raise $3.7 billion. This was a proposed increase in the rates, not a tax equal to 9.5% of a home’s value. The increase was subsequently withdrawn before adoption. Preliminary budget announcement, City Council’s June agreement

Its withdrawal matters. It also leaves an instructive political sequence: a debate about taxing the richest included a fallback reaching a much broader property base. The boundary between “someone else will pay” and ordinary household exposure can become negotiable when the budget is under pressure.

New York did enact an annual surcharge on certain expensive properties that are not primary residences. For its first two years, the thresholds differ by property type: more than $5 million in Department of Finance value for one- to three-family homes, and at least $1 million in DOF value for co-ops and condominiums. These valuation methods differ; the latter figure should not be mistaken for a simple $1 million sale-price threshold. Primary-residence exemptions apply. NYC Department of Finance

There is a defensible argument for asking owners of expensive secondary homes to contribute more. There is also a reasonable question about how many additional layers of taxation can be presented as the final missing contribution.

The city’s adopted FY2027 budget totals $125.84 billion and forecasts $88.67 billion in tax revenue. Its comptroller nevertheless identifies an unresolved gap between recurring expenditure and recurring revenue, with $6.07 billion in temporary measures used across the budget cycle. The same report credits the administration for recognising costs previously understated or omitted. Fiscal honesty is progress; durable financing remains unfinished. NYC Comptroller’s adopted-budget review

The proposal does not establish that everyone’s savings will eventually face a wealth tax. Its statutory amendment provision requires two-thirds support in each legislative house and consistency with the act’s purposes. Ordinary taxpayers would not suddenly owe 5% of their savings. Its administrative reach is broader: resident income-tax filers would have to declare net assets at or below the billion-dollar threshold or provide the required tax information. Proposed law, sections 50301 and 50310

The concern is a political precedent. Once accumulated capital becomes an accepted answer to recurring fiscal pressure, future campaigns can argue for another levy, a lower threshold or fewer exclusions. Those changes would require further lawful action. They are possibilities to scrutinise, not outcomes to announce as inevitable.

Property taxes already demonstrate that taxing ownership is not new. The larger issue is cumulative exposure: income when earned, transactions when assets change hands, property while held, and potentially a wider claim on net wealth. Each charge may have a plausible justification. Citizens are entitled to assess the combined burden and the quality of government it purchases.

That is where sovereignty becomes practical. The state needs fiscal capacity to govern. Individuals need enough predictability and control over their resources to make meaningful choices. Personal sovereignty cannot mean consuming public benefits while refusing any obligation to fund them. Neither should democratic sovereignty mean that private capital is permanently available to cover whatever the public sector has committed to spend.

Mobility complicates the bargain. People able to reorganise their lives across jurisdictions have options unavailable to households tied to jobs, family and homes. If a tax weakens the future revenue base, those with fewer options can inherit the adjustment. The scale of that response is uncertain; it should be estimated rather than dismissed or exaggerated.

The appropriate standard is demanding in both directions. Enforce taxes fairly. Challenge privileged treatment and evasion. Require governments to publish credible programme outcomes, distinguish temporary resources from permanent funding, explain the aggregate burden and revisit commitments that cannot be sustained.

Billionaires should have to justify their privileges. Governments should have to justify their claims. The public owes neither group a blank cheque.

Cover photograph: California State Capitol, Sacramento, 2 April 2026. Quintin Soloviev / Wikimedia Commons, CC BY 4.0. Cropped for layout.