Over about the past month, the California wealth tax proposal has filled various feeds of mine, whether it is Google, LinkedIn, or just articles in cnbc. I’ve got some views on that that I’ll be sharing.
What is a wealth tax? Quite simply, a wealth tax is a tax on assets. In the US, we tend to tax based on consumption and transactions. Mao, if you buy a house, a car, groceries, gasoline, etc, there are some taxes associated with it that you must pay the government. These taxes go to provide various services that we as a society have determined collectively that we think should be provided. These services are like roads, education, police, land use management, defense, etc. These services must be paid for.
As stated, we pay for government services via taxes. Then, we add in that the more money you make, the higher the percentage of tax that must be paid. The more money you make as income, the higher the percentage of tax on that higher income. There are two general types of income taxes for individuals, yes there are more but we’re keeping this simple.
* There is a general income tax. You make money via income from a job, you pay a certain amount of tax at the local, state, and national level. The more money you, the more you pay.
* investment taxes otherwise known as capital gains taxes. For example, let’s say you buy $10k worth of land. Five years later, you sell that land for $20k. You made a $10k profit on the land (20-10). You owe tax on that $10k income at a capital gains rate. This also happens with stocks. Let’s assume you buy a stock at $63 per share. Something happens and you sell the stock at $200 per share. If you had 1,000 shares, you would be responsible for capital gains tax on $137,000. Due to the risk involved with capital gains investments (investments can and do go to zero), that tax rate is less than the income tax rates.
There are at least two clear problems with taxes.
1. Income taxes haven’t kept up with the income of higher end income producers. On a federal basis, there is a top number for taxes that hasn’t kept pace. For example, Greg Abel of Berkshire Hathaway will make $25 million this year. Now, there is nothing wrong with $25 million of income in a year. Mr. Abel is not somehow evil or anything like that. I don’t disagree with the thought that Mr. Abel should probably pay a higher percentage of his income over $1 million in taxes.
2. Many wealth people are borrowing against assets for income and that is not taxable. I don’t know how big the bypassing of capital gains taxes is, but it is clearly a tax dodge. I’m not a tax specialist, but borrowing several billion dollars against an asset, such as stock is clearly a tax dodge. If a tax owner would need money, I would expect them to sell that asset and pay taxes on the capital gain.
Here are the problems that I have with a wealth tax:
1. The California wealth taxes are being used to offset cuts from the federal government. These cuts from the federal government have been ongoing for the past several years. California was the recipient of additional payments from the federal government during COVID. These payments were designed to be around the area of health. Now, with less money available, the state has to either cut programs or come up with additional income, most likely from taxes. Instead, the state should shore up its services and get the services more inline with its income.
2. What are assets worth? You can think, oh that’s easy, you just take the stock price and multiple it by the number of shares. Easy peasy done. No, it doesn’t work like that. When I buy a stock, 10 shares or so of something, I’m not going to affect the marketplace. When Jeff Bezos sells hundreds of thousands of Amazon shares, he is going to force the price of Amazon stock down. Why? Mr. Bezos is an insider. When insiders sell a share, even if the sale is disclosed, the general thinking is that there is a reason that has not been disclosed, which is going to drive down the price of an Amazon shares. When a few hundred thousand shares of Amazon come on the market, that will also drive down the price of Amazon shares. Keeping Mrs. Bezos happy costs money. Without an official transaction, it is simply not possible to value an asset, therefore it is impossible to put an accurate value on an asset. Wealth taxes are fundamentally flawed.
3. This is a very personal reason, that matters to me. I spent many years in the depths of startups at the early stage. Early stage startups need money, love and smiles will only take you so far. Early stage startup money tends to come from individuals with significant investable income. That’s billionaire money. Now, I live in the US southeast, so I am not directly affected. This wealth tax would soak up some amount of money for startups. This is not going to directly affect Silicon Valley, NYC, etc. They have plenty of money. We don’t have plenty of money in the southeast for startup money. https://sfstandard.com/2026/01/17/leave-b-billionaire-tax-backlash-spreading-far-beyond-billionaires/
4. I simply don’t understand why government has a right to a person’s possessions. Stocks, bonds, real estate, etc are assets. I simply don’t understand why any government is allowed to take a person’s possessions when those possessions are doing nothing. Stocks are sitting their doing nothing for the individual beyond validating their existence.
This doesn’t even get into the fact that wealth taxes have been tried and failed in Europe. The result of wealth taxes in Europe was capital flight. Wealth taxes roughly failed in Europe and were rolled back.
Even though I would think that California would go for wealth taxes, the situation on the ground is less clear. https://www.cnbc.com/2026/01/20/california-billionaire-tax-faces-uphill-battle-new-poll-finds.html
That is where I am at. I don’t like the concept of wealth taxes
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