Don Hankey, whose estimated net worth by Forbes is $8.2 billion, explained to the magazine why he relocated from Los Angeles to Nevada. Money wasn’t the main topic of his response. It had to do with feeling like you belonged. “I just felt a little bit like I wasn’t wanted,” he added. If he had stayed, the planned 5% yearly wealth tax on California billionaires would have cost him about $400 million. However, he presented his resignation in an emotive rather than an actuarial manner. It’s worth stopping to consider that.
California’s billionaire tax proposal, which is still in the signature-collection stage and has not yet been passed into law, has garnered more national attention than its current legal status probably justifies. It would impose a 5% tax on residents whose net worth exceeds $1 billion. This is partially due to the startling revenue figure: $20 billion annually, allocated to public services, would constitute a significant reallocation in a state where the disparity between wage growth and asset value has been growing for ten years. Over the last ten years, home prices in Los Angeles have increased by over 85%. The private sector in California saw a 49% increase in average hourly wages during that time. The billionaire tax plan is, at least in part, a political reaction to the daily arithmetic of that gap in the city’s property market.
Whether the proposition is changing the discourse is not the same as whether it becomes law. The fundamental notion that unrealized gains in equity holdings or appreciated assets should have some annual tax obligation rather than passing untouched until a sale or inheritance event has been seriously proposed by senators and discussed in policy circles. Wealth taxation has been a topic of discussion at the federal level for many years. Although it doesn’t end any of those arguments, California’s plan gives them greater substance. It adds a figure, 5%, to a map of billionaires and results in observable behavior, such as Hankey’s relocation to Nevada, which contributes to the body of evidence supporting the practical operation of wealth taxes.
The counterargument that California’s detractors most frequently bring up is that billionaires will just leave, weakening rather than expanding the tax base. It’s not an irrational worry. There is no state income tax in Nevada. For someone who already travels frequently, maintains several properties, and has the infrastructure to handle the paperwork, moving their official residence from Beverly Hills to Las Vegas is not a major practical inconvenience. The cost of moving is insignificant in comparison to someone who must pay $400 million in taxes each year.
However, the full reality of California’s tax system is more nuanced than the billionaire tax plan suggests. Since California’s state inheritance tax was abolished in 1982, there is no state-level tax associated with the transfer of significant wealth between generations, including stock holdings, real estate, and other assets. Although there is a federal estate tax, only the wealthiest estates are subject to it due to its 2025 exemption of almost $14 million per individual.
Planning techniques can further minimize this. Long-tenure property owners benefit from Proposition 13, the 1978 statute that caps property tax assessments. This group is highly skewed toward high-wealth households, who are more likely to own property, own more valued property, and keep it for a longer period of time. While the proposed wealth tax would be a new expense, a billionaire who purchased a large Los Angeles property twenty years ago and has been paying taxes on a 2004 assessed value is receiving a major ongoing benefit from the state.
Hankey’s comment has a psychological component that should not be disregarded. The signal that a tax proposal sends about who is valued by a community and who is deemed an appropriate target for additional extraction influences behavior regardless of the dollar amounts. Tax policy operates in a political and social environment. There is actual research on social affiliation and belonging. Individuals, even those who are extremely wealthy, react to perceived social acceptance in ways that go beyond money. Even before a single dollar is collected, the framing of a billionaire tax as a statement about desert and contribution rather than as a collection tool may already causing unintended effects.
It is actually unknown if California’s proposal moves forward, stops, or primarily acts as a test case that influences federal law elsewhere. The conversation has already shifted. Five years ago, the political fringe proposed a 5% annual wealth tax on billionaires. In the nation’s most populous state, it is currently a signature-collection drive that is producing departures from the targeted state and being debated in congressional offices. Regardless of the outcome of the ballot initiative, that trajectory is perhaps the most important factor.