Why Some Billionaires Are Planning Exits

The 2026 Billionaire Tax Act has sent shockwaves across the U.S. This act is generally defined by its proposed one-time tax of five percent on California residents’ net worth if they have over one billion dollars of wealth. There are clear theoretical arguments to be made for the bill’s passage as it would raise an estimated $100 billion for healthcare and educational needs. However, recent analysis suggests that design choices and the current wording of the act could have devastating legal and economic consequences, including some billionaires being taxed well beyond the proposed five percent rate. This article summarizes the current state of the proposed California billionaire tax, the recent criticism of the act, and how some of the act’s design choices might need to be reconsidered before it is potentially put up to a vote.

The California Billionaire Tax Proposal

As I previously covered in a Forbes contributor piece, the 2026 Billionaire Tax Act was filed by Jim Mangia, president and CEO of St. John’s Community Health, and Suzanne Jimenez, who represents the SEIU-UHW healthcare union, in October of 2025. The act has since been put forth as formal legislation on November 26, 2025, under the header of Initiative No. 25-0024. The act is currently collecting signatures to appear on the November 2026 election ballot.

The 2026 Billionaire Tax Act enacts a 5% tax on the wealth of California residents who have accumulated over $1 billion in wealth. The tax is unusual because it is a tax on wealth, rather than income, and the tax would include payments related to unrealized gains. According to Forbes, this act would raise $100 billion from California’s 200 or more billionaires between 2027 and 2031 (assuming no taxpayer migration or successful legal challenges), and these funds would go replenishing funding for California’s Medicaid and childhood education program.

According to the bill, taxpayers’ wealth will be defined by “personal property and wealth, including shares of capital stock, bonds, or other evidences of indebtedness, and any legal or equitable interest therein.” Thus, the bill is taking the stance that all assets shall be considered when determining whether a taxpayer is a billionaire and subject to the wealth tax.

The bill does allow a phase-in that will subject the taxpayer to the five percent tax fully once their wealth reaches $1.1 billion. Only a small amount of assets (up to five million dollars) can be excluded from the taxpayer’s net worth when calculating their billionaire status and wealth tax liability owed.

Even though the bill will not be voted on until November, the initiative proposes a retroactive effective date of January 1, 2026, a feature likely to face legal challenge. As it is currently written, this retroactive application would subject California billionaires to the five percent wealth tax immediately.

Recent Criticism Of The California Billionaire Tax

The proposal has already prompted significant responses among California billionaires. According to the New York Times, Peter Thiel and Larry Page have openly discussed leaving California due to this tax. Furthermore, FoxBusiness reports that real estate broker Julian Johnston is working directly with three billionaires about moving from California to South Florida due to this billionaire wealth tax.

California already imposes the highest and most progressive income tax rate in the U.S., with a top marginal tax rate of 13.3 percent on income over $1 million. This billionaire wealth tax would represent an incremental tax on high-net-worth taxpayers in addition to the already high taxes that they pay, leading to possible perceived inequity over this tax.

However, not all California billionaires are opposed to this plan. According to CNBC, Nvidia’s Jensen Huang has said that the additional taxes owed (a reported $7.75 billion) is “perfectly fine” with him. While this news is promising, it needs to be taken with caution for two reasons.

First, even if some California billionaires pay the wealth tax, if a significant number do not and challenge paying it, California may lose out on those tax revenues both for the wealth tax and in the future. Second, just because a billionaire says they will support this does not mean that they actually will. In fact, just two and a half years ago, Jeff Bezos supported Washington’s proposed billionaire. According to the Tax Foundation, he then announced a move to Miami, Florida, shortly before its passage, allowing him to forgo paying any wealth tax and upending the legislation’s potential.

Potentially the biggest criticism of this legislation is not from the billionaires themselves, but, instead, from the state’s current Governor, Gavin Newsom. According to the Los Angeles Times, Newsom strongly opposes this ballot measure, saying that it is badly drafted and will not end up aiding the essential state services it is geared toward. Given Newsom’s prominent role in both the state and the nationwide Democratic Party, his opposition likely carries a lot of weight among potential voters this November.

Potential Design Choice And Drafting Issues In The California Billionaire Tax

In theory, funding healthcare and education needs by asking billionaires to contribute a small percentage of their wealth may seem like a popular and plausible path toward addressing a key problem in California. However, there have already been numerous issues raised with this plan.

For instance, Baker Botts highlights that issues like the Dormant Commerce Clause lead to a failure of the Complete Auto Test because worldwide assets would be subject to a California tax. This article also highlights numerous legal concerns associated with the retroactive nature of the legislation, the legislation being aimed at a single out specific individuals (Bill of Attainder), the Uniformity Clause of the California Constitution, among other things.

The Tax Foundation highlights that, as a function of design issues and potential drafting errors, the five percent wealth tax is actually much larger than that. In particular, a billionaire’s valuation is based on voting interests. The article uses Tony Xu, the founder of DoorDash, as an example. Xu owns 2.6 percent of the company but controls 57.6 percent of the vote. In this example, Xu has a $2.41 billion net worth based on his ownership in the company. However, as a consequence of the bill as currently written, Xu’s wealth tax consequence would be $4.17 billion, or 173% of his company ownership.

The Tax Foundation article highlights five other California billionaires whose tax liability would be well over the five percent being advertised, including David Baszucki (Roblox), Sergey Brin (Alphabet), Larry Page (Alphabet), Mark Zuckerberg (Meta), and Jensen Huang (Nvidia). This raises questions about whether affected taxpayers would remain in California due to the unusually high wealth tax rate they would be facing.

Other considerations raised by the article are that the levying of the tax might force billionaires to sell a large number of their shares (potentially tanking the stock price and causing other financial issues), the assessment rules for private businesses might result in them being overvalued, large penalties of understating liabilities, unusual language defining anti-tax avoidance measures, and a substantial tax that can be assigned to taxpayers that get married or divorced.

While the proposed California billionaire tax is still far from a reality, both the potential benefits and consequences have become increasingly apparent. Should billionaires decide to depart California, they will still be liable for paying the wealth tax if the bill is passed. However, whether and under what circumstances this tax is challenged in court, upheld, and collected is a completely different story. Thus, California lawmakers and taxpayers must carefully balance the costs and benefits of attempting to levy such a tax on its 200 billionaires given the uncertainty in the outcomes.