No matter how many jurisdictions discover the hard way that wealth taxes backfire, in California an initiative is collecting signatures to put a ‘one-time’ (ha!) 5 per cent tax on the net worth of the state’s roughly 200 billionaires on November’s ballot. Hey, those guys are rich. They won’t even notice.
But the funny thing about people and money is that even folks with lots like to keep it. The 2026 Billionaire Tax Act is slyly retroactive, a variety of pre-crime legislation – applying to anyone resident in California on 1 January this year, looping a bungee cord around the ankles of would-be absconders. Thus billionaires such as Peter Thiel scrambled to establish a presence in a lower tax state before midnight on New Year’s Eve.
Everything you fancy you ‘own’ belongs to the state and all that you regard as ‘yours’ you’re merely renting
Yet changing state tax domicile in the US involves more than packing up a U-Haul and spending 183 + 1 days of the year elsewhere. California’s Franchise Tax Board hounds any fugitive who might have left his heart in San Francisco. Where does your pet live? Have you cancelled your CrossFit membership? They scour credit card bills for CA-based charges. (New York goes one better -– having once won a court case by proving a former resident hadn’t truly moved to Florida because her husband was buried in NY. Ergo, even leaving behind a corpse will anchor you to the high tax rates of the Empire State.)
I had a taste of California’s terrier-like tenacity regarding tax residency right after the financial crisis. My idiot British accountant – contact details on request – had put his office’s LA address on my previous US federal return. Clearly this wasn’t my personal address but the American location of my accountancy firm, but CA was desperate. Threatening notices that I was liable for paying California taxes became a blizzard. My multiple letters explaining that I hadn’t set foot in the state in 2008 were ignored. And get this: that Franchise Board even tracked down my old boyfriend, whose name was on a 2001 return merely as the tax preparer. By then he lived in Connecticut, and his wife despised getting all these notices of tax delinquency for her husband’s much-detested ex. Getting CA to desist took years.
Of course, we already have wealth taxes in Britain. Labour’s new ‘mansion tax’ on £2 million-plus houses is a wealth tax, and Rachel Reeves may be just getting started. Property taxes are wealth taxes, forcing homeowners to rent houses that supposedly belong to them. New Jersey residents can pay upwards of $25,000 per year for the privilege of owning their houses. As it varies according to your home’s worth, with the same miserable services in return – oh boy, waste collection once a fortnight – UK council tax is a wealth tax. In fact, when I lived in Borough without a meter, my water bill was based not on usage but property value. So this wasn’t a utility bill but a wealth tax on something I didn’t even own: the flat I was renting.
Leaving aside the irksome reality that the affluent don’t sit obediently still while being fleeced but often go away, the administration of a net-worth wealth tax is diabolically difficult. The value of illiquid assets such as paintings and jewellery is often contestable and subject to fluctuation. There’s a reason we don’t tax shares until they’re sold: their value is erratic, a gain one day, a loss the next. And what are the rights to my books ‘worth’? Many an asset has already been taxed, even several times. Why, the whole wealth tax mindset seems to run: if you’ve somehow managed to accumulate two cents to rub together after we’ve taxed you up the bum at every stage of your career, something went wrong. Since the system failed, we’re going back in time to fix it. That’s what’s really retroactive: perceived fairness.
The biggest problem with wealth taxes isn’t logistical but philosophical. Implicitly, there is no ownership. As the state reserves the right to confiscate your assets up to 100 per cent, effectively everything you fancy you ‘own’ belongs to the state, and if you’re very, very good the state will let you borrow some stuff from its vast lending library. (Hmm, there’s a word for this system… I think it begins with C.) All that you regard as ‘yours’ you’re merely renting. The wealth tax paradigm duplicates the lucrative business model now popular with tech. We no longer buy Microsoft Word. We rent it by the month.
Wealth tax advocates also play to the vague popular impression that accruing wealth beyond a certain threshold is immoral. Many average-income earners instinctively regard the very existence of billionaires as an injustice. Perhaps there should be a hard ceiling above which no one is allowed to amass more riches, and any excess must be seized and distributed to the less well off.
Except this is a misunderstanding of non-zero-sum economics. Most billionaires haven’t filched money from other people’s wallets and stuffed it in their study safes. A freakish byproduct of capitalism, they’ve generated value, usually by building businesses and hiring employees; adding to rather than extracting from the economy, they’ve baked a bigger pie. Eliminate the billionaire, and you don’t suddenly have a billion dollars to spend on schools and hospitals. The state and its citizenry are poorer. Like California, if it passes this proposition.
Still, for government, wealth taxes are eternally tempting: ‘All that money… can’t we just take it?’ Picture Amahl and the Night Visitors, when Amahl’s mother talks herself into stealing the Magi’s gold: ‘For my child!… For my child!’ So Spain has introduced a ‘solidarity tax’ on any resident’s assets over €3 million – a modest net worth, these days. Three-quarters of Britons reckon that a UK wealth tax would be swell.
Think again. Besides chasing away even more of your tax base, you’d set an alarming precedent. Give the state free rein to expropriate what you now nominally own post-tax, and you imagine they’ll only use that new superpower on billionaires? Oh, my pretties. Your innocence is touching.
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