Golden State or Golden Exit? Experts debate the California wealth tax

[00:00:00] Speaker 1: California weighs to propose five percent tax on billionaires. Some economists are questioning whether this unprecedented wealth tax is a necessary step for economic equity or a recipe for a mass capital flight. Joining us right now is Paris School of Economics Professor Gabriel Zuckman. He is a UC Berkeley summer research professor, founding director of the International Tax Observatory and the author of We Need to Tax Billionaires and Stanford University's finance professor in Hoover Institution, senior fellow Josh Rao. Good morning to both of you. Before we get into the debate itself, I'm curious where you think the actual polls are and what you think is actually going to happen here. Gabriel? I think it has a good chance to pass. I think there's [00:00:43] Gabriel Zuckman: overwhelming demand and popular support for taxing billionaires. Now, of course, the billionaires have spent more than $300 million to fight Proposition 40, the California billionaire tax. So this might have an effect on the vote. But what we see everywhere in California, in the U.S. and globally is that this is usually popular. [00:01:04] Speaker 1: Well, it's surprising it wouldn't be popular, though. Have you been surprised, Joshua, that in some cases, depending on how you look at the polls, it hasn't been more popular? [00:01:18] Josh Rao: Well, prediction markets say it's only got about a 25 or 30 percent chance of passing it. And that's what I think is going to happen. I think people are listening to the reason that's coming out that shows that this tax is going to be not a revenue collector for California because of the net losses from the future streams of income taxes that will not be paid by all the billionaires who are left. And the fact that it's going to be bad for the economy. When founders leave California, when the startup ecosystem is threatened, they take their jobs with them. And I think voters understand that. I think Prop 40 is going to fail. [00:01:46] Speaker 1: Well, Gabriel, what do you make of that, though? You've been a big proponent of this of this tax. You just saw, by the way, someone like a Mark Zuckerberg. He's going to stay in California. You could say that's good for him. But at some level, you're also seeing that the company is going to pay for him to stay in California. [00:02:02] Gabriel Zuckman: No, the company is not paying for him to stay. He would pay the wealth tax. He would pay more than 10 billion. He's committed to staying for at least eight more years in California, but he would keep his 60 percent voting rights in Meta. But he would pay the tax. And I think he's a good illustration that this supposed exodus that we're hearing all the time doesn't make sense. It's not happening in reality and would not happen. [00:02:33] Speaker 1: Gabriel, I guess what I'm asking is a different question. When you saw what Meta is prepared to do as it relates to keeping his voting control of the company, which, by the way, we had a governance expert on earlier this morning who effectively suggested that this is perverting the entire system. Do you say to yourself that's a good outcome? [00:02:54] Gabriel Zuckman: I think, you know, the fact that people like Zuckerberg or other tech billionaires can control the firms they own while owning a relatively small economic stake in the firm. They have 10 percent of the company, but more than 50 percent of the voting rights. I think that's not a great system, but that has nothing to do with the California billionaire tax. What just this deal between Meta and Zuckerberg shows is that if they want to allow him to keep control of the business, they can find ways to pay the tax. He will stay in California and nothing will change for Meta. [00:03:32] Speaker 1: I got to get to Joshua. But what do you make of Larry Page? What do you make of Peter Thiel? We can go down the list. [00:03:39] Gabriel Zuckman: Well, there are a couple of billionaires and you've mentioned the two prominent ones that have said that they would move out of California or pretend they've already moved. You know, it's very hard to become a non-resident for tax purposes. You have to change schools for your children. You have to change your burial plots. You have to change everything. So the best experts of that area of the law, you know, residency for state tax law purposes, believe that no billionaire was able to successfully move out of California before January 1st of 2026, meaning they would all be on the hook for the 5% wealth tax. [00:04:16] Speaker 1: Oh, please. Joshua, I know you're on the other side of this and I know you think it's going to be damaging to the state. My question to you is why folks like yourself have not been advocating for other measures that might raise funds that might be more palatable than the idea of taxing unrealized gains. [00:04:36] Josh Rao: I'll answer that. But first, I have to just push back on the fact that, look, people who left California in response to Gabriel's initiative, which was announced in October 2025, these people have very sophisticated attorneys. They know all the boxes you have to check to establish residency outside of California. Of course, significant numbers of billionaires left before the end of 2025. And we've documented that. So I think that's, you know, that's really just not really a question. Asked your question for what other, you know, why are we advocating for other stuff? Well, look, you know, Gabriel's measure is predicated on this claim that California is somehow facing a fiscal emergency or needs more money. Let's examine that claim. All right, total funds for Medicaid for California are up more than double, 123 percent since 2019. California spends $219 billion on Medi-Cal from state and federal sources. Medi-Cal is the California Medicaid. That's over $7,000 per resident of California, not per person on Medi-Cal. Federal funds for Medicaid are up 113 percent since 2019. And, you know, last year's reconciliation bill slows down the rate of growth of federal money flowing to Medi-Cal. But that doesn't mean that there's a fiscal emergency. General funds spending in California is up 79 percent over the last over the last seven years. The idea that we need more revenue is just a flawed idea. Californians take a close look at its spending, the efficiency of its spending, not only on health care, but in education and many other things. [00:06:05] Speaker 1: Joshua, do you want to tell us what you'd cut then very specifically? [00:06:09] Josh Rao: Look, I'm not in charge. What I would cut, I would look at efficiency. How can it be that we're running a program that has gone up, the cost of which has gone up 123 percent since 2019? I don't think residents of California are saying that their services are much better than they were seven years ago. So, you know, no, it's not up to me to look at what to cut specifically. Our elected officials need to be put on, pressure needs to be put on them to look into whether it is the case that they are stewarding public funds efficiently. And I think in California the evidence is that they're not. [00:06:38] Speaker 1: Gabriel, I imagine you disagree there. [00:06:43] Gabriel Zuckman: Yeah, I mean, look, if Proposition 40 doesn't pass, three million Californians are going to lose health insurance. They're going to lose Medicaid. And there's no plan B. And everybody agrees with that. Even Governor Newsom. You know, there's no plan B. Three million people are going to lose health care. So that's the choice to be made. Are people of California going to vote to ask 250 billionaires to pay just five percent of their wealth in tax? It would bring their wealth back down to where it was just a few weeks or a few months ago. Their wealth has been multiplied by three since 2023. They would just have to pay five percent in order to allow three million people to keep access to health insurance and to health care. Hey, Joshua, hold on. [00:07:35] Speaker 4: Hold on. Did the big, beautiful bill sort of make it impossible to do the California switcheroo on the they don't use actual federal funds to cover illegal immigrants, but they do use state funds. They're covered by Medi-Cal from from an early age all the way through. So the way that they do it, federal funds, whether they're part, whether they're actually earmarked for that or not, it's fungible. And they end up covering health care for all for everyone in California. And that's where when the Republicans were talking about that in that that election or the government shutdown, there was that argument that no federal funds are being used. But they do. They cover everyone under Medi-Cal. That's why it's up 100 percent. I mean, isn't that part of the issue, Joshua? [00:08:25] Josh Rao: Well, that's correct. I mean, the coverage of of of illegal immigrants cost California up to 10 billion dollars per year. And money is fungible. These these reductions from last year's reconciliation bill, these simply slow down the rate of growth of federal spending. The idea that the millions of people are going to lose lose health insurance. The state is swimming in money. If you look at the state's balance sheet, they've got 75 billion dollars more on their balance sheet than they had in 2019. Where is this emergency need for 100 billion dollars is coming up that once makes Gabriel want to seize the assets of people who have built companies in California? It just doesn't have punitive. [00:09:04] Speaker 4: It's punitive more than anything. Gabriel, I don't know what's happening in your native land right now, but does anything happening there tell you that the more socialism that you try for, you just it ends up causing the need for even more socialism till there's just no money left anywhere? [00:09:23] Gabriel Zuckman: Yeah, I think with all due respect, Joe, I'm not sure you're fully familiar with what's happening in France. I think with all of you, Joe, I'm not sure you're fully familiar with what's happening here. I'm crumbling and so they want billionaires to pay their fair share. [00:09:57] Speaker 4: You think higher taxes in France, higher taxes in France is the so that's that's that's your answer. But even more taxation in France and more billionaires and billionaires, Joe, you understand. [00:10:08] Gabriel Zuckman: Well, that's not going to be enough. That's not going to be enough. Are there any billionaires in France? [00:10:12] Speaker 4: There's like two. [00:10:13] Gabriel Zuckman: You know, no, no, I think, you know, again, I don't think you're familiar with the situation, you know. So the 500 wealthiest people in France, they own wealth that's equivalent to 35 percent of the GDP of France. It's not very different than California, where the 250 billionaires, their combined wealth is equivalent to 50 percent of the GDP of California. Their combined wealth is as big as the total income reported by Californian families and their individual income tax returns, 20 million families. So there's an enormous amount of wealth at the top, both in California and in France. And in both cases, it's just untaxed. And why should we accept that the most powerful people in the world don't contribute to our common revenue needs? That's just very hard. [00:11:00] Speaker 4: It's not a zero sum game, Gabriel. They didn't steal it from the 20 million families that you're that you're comparing it to. They created the wealth because we have a place called Silicon Valley that that has the greatest companies in the world that we report on every single day. And that should be something that it's celebrated and cherished, not something that you punitively use to say 20 million families don't have anything. That's that's that's a specious. That's sophistry. [00:11:23] Gabriel Zuckman: Creating a business shouldn't give you the right to not pay taxes to create all that wealth. No, but it's not because you create a business that you have a right to live outside of society. Right. You've created a business, Gabriel. Because of benefit from infrastructure, from universities, from the ecosystem, from, of course, the work of. [00:11:45] Speaker 1: Gabriel, let me just pull it back for a second. [00:11:49] Gabriel Zuckman: Taxes like everybody else. [00:11:50] Speaker 1: I imagine you would prefer to do I don't know if you would prefer or not to do this either do this on a national basis or to do something else to raise taxes on a national basis. I think you'd agree that doing on a statewide basis does create a much more complicated, perverse incentives for people to leave the state over time. And therefore, there is a balance issue as to whether you actually are able to collect all of these taxes. I'm curious whether you would, you know, how you think about things like, you know, taxes at death and step up basis, carried interest, capital gains taxes. I mean, to me, there's probably lots of things you could do before you actually tax unrealized gains that that may raise as much, if not more money on a national basis. Is that something you'd advocate for or not? Or is this sort of you're doing this because this is you think your only option? [00:12:48] Gabriel Zuckman: So on your first question, I think it's, of course, easier to do at the federal level than at the state level. But I also think that if Prop 40 passes in California, it will pave the way for for federal tax. That's how it worked for the income tax at the beginning of the 20th century. It was first created by a number of states, Wisconsin in 1911, most famously. And that's what paved the way for the federal income tax. Now, second question is, of course, there are lots of things to fix with the income tax, with the estate tax. But it would not address the fundamental issue, which is that billionaires pay very little. And the problem is that these billionaires, they find ways to report no or very little taxable income. So that no matter what the rate is on income, it doesn't address the problem. In some years, you'll see Sergey Brin or Larry Page or Mark Zuckerberg reporting no income. They pay themselves no salary. The companies don't pay dividends. They don't sell shares. And so fix the income tax, of course. But it's not going to address the issue. [00:13:57] Speaker 4: Andrew's talking about the stepped up. Andrew wants to get to some of that in a different way. Joshua, I don't know. [00:14:04] Speaker 1: I'm actually curious from Joshua's perspective, given the idea. There's a broader question, which I agree or I accept that you where you stand on the California piece. Do you think there are things to do in the tax code that would raise additional taxes? Or are you just in a position where there should be no effort to raise additional taxes whatsoever? [00:14:23] Josh Rao: Look, you can look at some of these loopholes. I'm all for closing loopholes that would improve revenue collection. And that, of course, should be looked at. I think the number one problem is spending and spending efficiency. But, you know, of course, nothing against closing loopholes. But things like these strategies that are talked about, you know, buy, borrow, die, or the idea that there are vast amounts of money that are being borrowed to fund consumption have been wildly misstated. You know, the numbers that are out there on that strategy, they include things like margin lending on stocks, not only for billionaires, but for just for everybody. They include loans against private businesses. Those numbers are drastically overinflated. And, you know, there's a great study from Yale Law School about this, about just how minor these kinds of strategies are. So I think, you know, putting a lens on that is just incorrect. And Gabriel's assertion that billionaires aren't paying taxes, that assertion is based on SEC filings about what they're doing with shares in their company. I don't think Gabriel has data on the family offices and how much tax they're paying. They try to do tax-efficient investing. These are large amounts of money. I think the assertion these people aren't paying tax is not correct. And, prospectively, also, anytime they want to realize gains, they're going to pay taxes. Wouldn't it have been nice if the IPO of SpaceX had happened while Elon Musk was still in California? I would ask Californians if they want to drive away the next generation of founders. So many investors have expressed major concern about this. I think the iconic case is Mark Cuban saying he's not going to invest in startup companies in California. [00:15:56] Speaker 4: Historically, who's the closest for the—Elon Musk, I think, paid $11 billion a couple of years ago. What's the closest person historically anywhere near when I hear Elizabeth Warren say Elon Musk doesn't pay any taxes? Who's even close to that number lifetime? Anybody? [00:16:15] Josh Rao: Well, I imagine some other people on the list that Emmanuel and Gabriel want to pick up in their dragnet. [00:16:22] Speaker 4: But probably a net benefit to society and to the tax base and everything else. [00:16:28] Josh Rao: They're paying tremendous amounts of taxes over their lifetime, and that's the key number. you