Sacramento Asks Whether Arithmetic Has Been Approved

SACRAMENTO, California — More than 130 economists, including four Nobel laureates, have urged California voters to reject Proposition 40, a proposed 5% tax on billionaires’ wealth. This is believed to be the largest gathering of economic expertise in state history that Sacramento has managed to treat as an unwanted group text.

Economics is taught in school for a reason. California apparently attended the first lecture, heard the words “supply and demand,” and demanded to know why supply wasn’t paying its fair share.

The proposal targets people worth at least $1 billion, promising revenue for health care and other programs. Nobody disputes that health care needs money. The dispute concerns whether California can fund it by frightening the people who currently provide a considerable amount of the money.

California Billionaire Exodus: The Golden State Discovers the Exit Sign

According to National Review’s analysis of the billionaire tax, critics say at least seven billionaires have already relocated, carrying an estimated $536 billion in wealth with them. That estimate is disputed territory, but it illustrates the central concern: unlike a redwood tree, an investment portfolio can cross the Nevada border without hiring a lumberjack.

California’s plan resembles a restaurant announcing a special surcharge for its wealthiest customers, then expressing shock when the customers discover another restaurant across the street. Management responds by raising prices on the empty tables.

Moving Truck Driver Reports Steady Business Along Interstate 80

Dale Kowalczyk drives a moving truck between the Bay Area and the Nevada line, and he said business has been steady. His recent customers, he said, share one trait.

“They move very little stuff and very large amounts of money,” Kowalczyk said. “One guy shipped a single box. I asked what was in it. He said, ‘Fourteen companies.'”

Prop 40 Revenue Estimates: What the Experts Disagree About

The Hoover Institution’s economic analysis projects that the tax could ultimately cost the state revenue after lost income taxes are considered. Economists Ben Jaros and Joshua Rauh reached a similar conclusion in their own work on the measure. California’s nonpartisan Legislative Analyst’s Office, by contrast, estimates the measure would raise tens of billions initially while potentially reducing future income-tax receipts.

In other words, the experts disagree about the size of the bill, but they agree it comes with a bill.

Budget Memo Lists Billionaires Under “Fixed Assets”

A budget memo obtained by reporters contains an assumptions page that reads, in full: “Taxpayers with a net worth above $1 billion are assumed to remain in place. Please do not ask for the source of this assumption.”

“The model treats a billionaire like a lighthouse,” said Marlene Aubrey, a public finance professor who has taught the subject for 31 years. “Large, expensive, and bolted to the coast. A billionaire is much closer to a sailboat.”

A Sacramento economic adviser, in the spirit of the state’s current fiscal reasoning, could explain the situation with crayons: “If rich people leave, we’ll simply tax their empty houses.”

Unfortunately, real estate is largely excluded from the proposal.

Even the crayons have filed for reassignment.

California Gets an F in Incentives

Proposition 40 is advertised as a one-time levy. Californians are familiar with the phrase “one-time.” It means the government only plans to do something once, until the first time works.

There is also a wonderful administrative problem. Much billionaire wealth consists of businesses and shares, not giant swimming pools filled with nickels.

Taxing a person’s stake in a private company requires valuing the company, arguing about the valuation, and potentially requiring the owner to find cash. Sacramento views this as a paperwork opportunity with a brief interruption for entrepreneurship.

The proposed tax looks backward to people who lived in California on the measure’s residency cutoff date. Leaving now would not erase that liability if the measure becomes law. But investors deciding where to build their next company can still read a calendar.

And an airline schedule.

Supporters argue that extraordinary fortunes can support essential services. Fair argument. But the part missing from Sacramento’s lesson plan is that people respond to incentives, capital moves, and yesterday’s tax base is not guaranteed to attend tomorrow’s roll call. The official voter guide for Proposition 40 lays out the measure for anyone who wants to read it before the state does.

California has beaches, mountains, Hollywood, Silicon Valley and some of the brightest minds on Earth. It also has politicians apparently convinced that successful businesses are stationary objects, like mountains, only with more taxable income.

Budget Committee Spokesperson Has One Outstanding Question

Asked whether the measure’s backers had considered departures, a spokesperson for a Sacramento budget committee said staff were still reviewing the economists’ letter and had a single outstanding question: whether mathematics has been approved by the Democratic Party. The spokesperson said the committee expected an answer after the election.

The economists have offered the state a remedial course.

California is checking whether it can tax the textbook.

Five Observations From the Back of the Classroom

1. A billionaire’s money isn’t sitting in a vault with a dollar sign on the door. It’s stock. It lives on a phone. They can move it out of California with one thumb, and I can’t get a couch down a stairwell without losing a friend.
2. “One-time tax.” That’s what my ex called the dinner she said she was paying for. Still waiting on the check. Still paying for the dinner.
3. They taxed the rich people to fix the budget. Great. Now the rich people are in Nevada, and Nevada has a buffet. You can’t beat a state that gives you tax savings and a $9.99 prime rib.
4. One hundred thirty economists signed a letter. You know how hard it is to get two economists to agree on lunch? These guys agreed on a tax bill. When that happens, you check your wallet and you check the exits.
5. The plan assumes billionaires will stay put out of civic pride. Have you met a billionaire? These people leave a restaurant if the bread comes late. You think they’re sticking around for the property tax?