For generations, California was where the American Dream came true.
So many businesses began with nothing more than an idea around a kitchen table. A garage became a workshop. A spare bedroom became an office. An entrepreneur put every dollar they had behind an idea — and, with hard work, that idea could become something much bigger.
That is the American story.
But instead of fostering that spirit, California progressives are trying to take it off the table.
California’s proposed wealth tax, Proposition 40, would impose a one-time 5% tax on the total net worth of any Californian worth more than $1 billion. It is being marketed as a tax on billionaires. In reality, it is a threat to all Californians.
This misguided policy would cost jobs, encourage businesses and entrepreneurs to leave California, and undermine the innovation that powers the state’s economy — all while making California’s chronic budget problems worse.
California has long been home to the brilliant minds behind some of the world’s most successful companies. But as the wealth tax looms, many are already moving their fortunes elsewhere, including Meta CEO Mark Zuckerberg and Google co-founders Larry Page and Sergey Brin.
California already has the highest top individual income-tax rate in the country, at 13.3%, relying heavily on its highest earners. Over the past two decades, the top 1% of earners — about 176,000 households — have paid roughly 45% of the state’s personal income tax. That revenue funds schools, health care, and most of what Sacramento spends.
If Proposition 40 passes, California’s tax base will be pushed out and working families will ultimately pay the price.
The most obvious consequence is the loss of businesses and the jobs they provide.
Texas has overtaken California as the state with the most Fortune 500 headquarters, and the exodus extends far beyond household names such as Chevron and Tesla. From 2011 to 2021, California lost a net 1,250 company headquarters and over 83,000 headquarters jobs. Those companies and their jobs overwhelmingly moved to states with lower taxes and lighter regulation.
But that may not be the biggest threat to working families.
Most of those affected by a wealth tax do not keep their fortunes sitting in bank accounts. Much of their wealth is tied up in ownership stakes in the companies they built.
And there is a basic problem with taxing wealth that exists primarily on paper: the state wants cash.
The Franchise Tax Board does not accept shares of stock as payment. That will force business owners and investors to sell shares or borrow heavily against their assets to cover the bill.
Forced selling at this scale moves markets, and billionaires would not be the only people exposed to those consequences.
These same public companies make up the retirement portfolios of millions of Americans. With 62% of Americans owning stocks directly or through retirement accounts, teachers, nurses, police officers, and factory workers could see their retirement savings evaporate.
The wealth tax would also dismantle the innovation engine fueling California’s economy.
California’s economic strength has always been tied to innovation. The Golden State accounts for roughly 30% of national R&D activity and leads the nation in biotech patents. Silicon Valley’s AI boom has attracted hundreds of billions of dollars in venture capital, with California drawing three times more investment than the rest of the country combined.
That capital finances startups, employs workers, builds laboratories and factories, and funds the next generation of medical treatments and technologies. California should be competing to attract more of that investment instead of creating new incentives for it to leave.
Proposition 40 is ultimately a tax on American enterprise, with ripple effects throughout the California economy that makes it harder to build the next generation of businesses here.
What California needs is to address its accountability problem. Punishing success will not magically fix Sacramento’s fiscal mismanagement.
I have spent years watching California attempt to tax and spend away its budget mess. Time and time again that strategy has failed. As the former Vice Chair of the Budget Committee in the State Assembly, I repeatedly pushed for greater transparency and fought to expose Sacramento’s waste.
California’s problems won’t be solved by finding another group to tax. They will be solved by confronting the spending and accountability crisis in Sacramento.
Under Gavin Newsom, an estimated $146 billion has been lost to Medi-Cal fraud. Thousands of inmates, including some on death row, received unemployment benefits during the pandemic, while at least $32 billion was lost to fraudulent Employment Development Department payments. California’s High-Speed Rail project was supposed to be completed six years ago for $33 billion. Today, zero tracks have been laid and projected costs have ballooned to $230 billion.
The answer to our problems is not another tax. It is more opportunity, growth, and fiscal responsibility.
California should be asking how to turn more kitchen-table ideas into thriving companies.
Every great company must start somewhere. California should make sure the kitchen table remains the place where the American Dream begins, not where it ends.
Vince Fong represents California’s 20th Congressional District in the U.S. House of Representatives.