The Service Employees International Union recently filed an initiative with the California Attorney General’s Office called the 2026 Billionaire Tax Act. It is possible that the SEIU could obtain a sufficient number of signatures to place the initiative on the November 2026 ballot. Apparently, it is uncertain whether such a ballot measure would require only a simple majority to pass or whether a two-thirds majority would be needed.
According to the California Legislature’s Legislative Analyst’s Office, “Billionaires living in California on Jan. 1, 2026, would have to pay a one-time state tax equal to 5% of their net worth. The tax would be due in 2027. Taxpayers would have the option to spread the payments over five years, but would have to pay more to do so. Real estate, pensions, and retirement accounts would be excluded from the tax.”
As a CPA who has practiced for over half a century, my view is that this measure is not only bad tax policy, but it also would result in significant administrative burdens to collect.
Furthermore, many tax commentators believe the measure would be subject to constitutional challenges.
From a tax policy perspective, this would clearly encourage the wealthiest Californians to leave the state. While there is considerable political debate about whether billionaires pay their “fair share” of tax, they undoubtedly already pay a large share of California income taxes that are collected.
The top 1% of taxpayers pay approximately 40% of the state personal income taxes.
Plus, if the billionaires move out of state, they will likely take with them their businesses and employees who also pay considerable California taxes. This last point was explicitly mentioned by the Legislative Analyst.
Several tax commentators have suggested that the proposal violates provisions of the California Constitution. For example, the tax would be retroactively imposed based on a date prior to enactment of the ballot measure.
Furthermore, the tax may apply to certain non-residents who spend part of their time in California or who moved out of state after the effective date but before the tax was enacted.
Furthermore, the proposal would create a significant administrative burden for taxpayers, tax practitioners and the Franchise Tax Board. In my experience, the most complicated and controversial tax issues are usually those that involve valuation matters because the determination of market value is often subjective.
Billionaires typically hold substantial private business through complex ownership structures, which are challenging to unravel and place a value upon. They also frequently own collections of art, vintage automobiles, sports franchises or other exotic asset categories for which there is no definitive market value.
I have dealt with estate and gift tax returns where the taxpayers have spent significant sums establishing the value of estate or gifted assets. Frequently these values are challenged by the tax authorities in a drawn-out process that is expensive for both the taxpayer and the tax authorities.
The SEIU proposal acknowledges this and provides for reimbursement to the Franchise Tax Board of up to $15 million annually for the “actual and necessary costs” of administering the tax.
This is not the first proposal to impose an ad valorem tax on billionaires. The last such tax was proposed in 2023. At that time the FTB estimated it would incur $200-$300 million annually to administer that tax.
Having served as a tax advisor to several billionaires in my career, I know that billionaires frequently pay income tax at a much lower effective tax rate than most middle-class taxpayers. (Effective tax rates are the percentage of income that is actually paid in taxes.) Although Congress has closed several billionaire income tax loopholes in recent years, billionaires tend to avoid tax by refinancing assets instead of selling them.
Borrowing is generally not a taxable event. By holding the assets until death (when the basis of those assets is stepped up to their fair market value on the date of death) billionaires (and other wealthy taxpayers) avoid paying income tax on the appreciation of those assets. The assets are sold posthumously to repay the borrowings and to provide liquidity for heirs.
While wealth taxes such as the SEIU proposal make no sense, perhaps modifying the income tax laws to make certain refinancing transactions taxable events would close some income tax loopholes and place billionaires on a footing similar to that of the middle class.
However, doing so is easier said than done, as the devil is in the details.
Jim de Bree is a semi-retired CPA who resides in Valencia.
