A 'Billionaire Tax' Will Only Worsen the Golden State's Health System
A group of unions in California has proposed a new plan for paying for healthcare — soak the rich. That's the idea behind the Billionaire Tax Act, a 2026 ballot initiative that would impose a 5% tax on the state's billionaires in order to raise money for healthcare programs and providers.
It's a tragically short-sighted idea.
A wealth tax of this magnitude would almost certainly send the state's richest residents fleeing to more hospitable locales — and devastate California's tax base in the process.
No other state has such a devastating law on its books.
In the end, California's finances would be even more out of whack than they are today.
According to the president of the Service Employees International Union-United Healthcare Workers West, one of the initiative's chief proponents, the new tax would "help us keep health care facilities open. It will stabilize premiums and coverage for all Californians, protect health care jobs and also improve public education."
That's assuming there are any billionaires left in California if this exorbitant levy takes effect. Faced with a choice between handing over 5% of their savings to Sacramento or simply relocating to another state or country, many will no doubt leave.
The state has been bleeding population in recent years.
Between July 2020 and July 2023, California lost more than 400,000 people.
It gained 49,000 people through July 2024. The state's onerous tax system is a big reason why California's population has been on the wane.
Hitting up the rich to pay for healthcare for low-income people may sound like a just cause. But wealth taxes have been tried before — and have failed to deliver.
Consider Norway's recent experience.
The country increased its wealth tax to 1.1% in 2022.
In response, rich Norwegians left the country in droves — costing the government an estimated $594 million in tax revenue.
The tax, meanwhile, generated a mere $146 million — far less than what the government ended up losing.
This is one reason why many countries that once imposed wealth taxes — including Germany, the Netherlands, Sweden, and France, to name a few — eventually chose to repeal them.
How much does California stand to lose should the state's billionaires make for the exits?
Based on the figures provided by the initiative's supporters, the 200 individuals who would be affected by the levy currently pay about $30 billion in personal taxes — or about 23% of what the state collects in income tax each year.
Should nearly one-quarter of California's tax revenue evaporate in a matter of months, the state would be left with a gargantuan and — permanent — funding shortage.
The ballot initiative caps annual spending from the new wealth tax at $25 billion, according to work from my colleague Dr. Wayne Winegarden.
"In other words," Winegarden writes, "the state is risking a recurring $30 billion loss in personal income tax revenue for the hope of getting a $25 billion revenue boost."
And that's if everything goes according to plan.
To be sure, California's public-sector health programs are facing a fiscal crisis.
Earlier this year, the state's Medicaid program, known as Medi-Cal, faced a $6.2 billion budget shortfall — which Gov. Gavin Newsom, D-Calif., only managed to close by borrowing the money from the state's general fund.
Medi-Cal's finances are not in disarray because the rich aren't paying their fair share.
Rather, it's because Democrats have swept ever-more people into the program without a sustainable plan to pay for their coverage.
Today, Medi-Cal covers nearly 4 in 10 Californians.
Some 1.6 million of them are undocumented immigrants.
The cost of covering the undocumented is projected to reach $12.4 billion this year.
Total spending on Medi-Cal is projected to be about $188 billion in 2025-26.
The state covers a little more than one-third of that figure; the federal government covers the rest.
A one-time cash injection from a couple hundred billionaires would make little more than a dent in the annual bill for some 14.9 million Medi-Cal beneficiaries.
The top 1% of Californians by income provide more than 45% of the state's income tax revenue. With gambits like this proposed wealth tax, organized labor and its allies are doing everything they can to drive the golden geese from the Golden State.
Sally C. Pipes is President, CEO, and Thomas W. Smith Fellow in Health Care Policy at the Pacific Research Institute. Her latest book is "The World's Medicine Chest: How America Achieved Pharmaceutical Supremacy — and How to Keep It." Follow her on X @sallypipes. Read more of Sally Pipes' reports — here.
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