California's Wealth Tax Doesn't Fix the Real Problem: Cash-Poor Billionaires Who Borrow Money, Tax-Free, to Live On

California’s proposed one-time 5% tax on billionaires has reignited a high-stakes political conflict. The measure, backed by the Service Employees International Union (SEIU), aims to generate funding for healthcare and education amid federal budget cuts. Governor Gavin Newsom, however, has vowed to oppose the initiative, warning it could drive away investment.

The tax would apply retroactively to billionaires living in California as of January 1 and grant them five years to pay. Opponents argue it could prompt a mass exodus of high-net-worth individuals, who might shift assets to lower-tax jurisdictions. Google co-founders Sergey Brin and Larry Page have already moved assets out of the state, according to reports.

The proposal needs over 900,000 petition signatures to qualify for the November ballot. So far, it has drawn significant support from labor groups, which see it as a way to fill gaps in state healthcare funding.

Why Did This Happen?

The proposed tax emerged in response to projected funding cuts to California's healthcare system, which would disproportionately impact middle- and lower-income residents. SEIU-UHW, a major healthcare workers' union, has framed the tax as a temporary, emergency solution.

Governor Newsom, on the other hand, has argued that the tax would harm the state's innovation economy. He has cited the movement of billionaires like Brin and Page as evidence that the tax could discourage investment and innovation.

How Did Billionaires Respond?

Some of the state's wealthiest individuals have taken concrete steps to avoid the potential tax. Palantir founder Peter Thiel contributed $3 million to a political action committee opposing the measure. Google co-founders Larry Page and Sergey Brin have moved assets out of California, incorporating new entities in Delaware.

Other tech leaders, like Tesla CEO Elon Musk, have encouraged their peers to consider relocating to more tax-friendly states. Meanwhile, some billionaires, such as Nvidia CEO Jensen Huang, have publicly expressed willingness to pay the tax.

What Are Analysts Watching Next?

The success of the tax depends on whether it reaches the ballot. The initiative still needs to gather over 900,000 signatures. If it does, a campaign is expected to spend tens of millions of dollars on its outcome.

Governor Newsom has pledged to use all available resources to defeat the measure.

However, the state's legislative analyst has noted that any loss of ultra-wealthy residents could reduce state tax revenues, complicating efforts to fund public services.

The debate reflects broader national conversations about wealth inequality and the role of taxation in supporting public services. As California continues to grapple with these questions, the outcome of this proposal could shape future policy discussions across the U.S.