A proposed billionaire wealth tax in California is sparking debate over whether the measure, if passed, would lead to more harm than good if ultrawealthy residents in the state flee to other locales.

Under the proposed ballot initiative, California would institute a one-time tax of 5% on the state's estimated 255 billionaires. While wealth taxes aren't new, the proposal has sparked pushback from some of America's richest citizens and their allies, who claim it could drive the state's billionaires to leave the state and discourage entrepreneurs from creating businesses.

By contrast, advocates of the tax emphasize that billionaires' fortunes are growing much faster than the income of ordinary Americans. 

"The billionaire class had their wealth nearly triple in the last six years, and a one-time wealth tax will only put a 5% constraint on their wealth accumulation," Omar Ocampo, a researcher at the left-leaning Institute for Policy Studies, told CBS News. "It will not significantly impact their lives, their consumption or spending habits."

Others warn that California could face a revenue shortfall if the state's wealthiest residents — who already pay relatively high tax rates — decamp for other states to avoid the tax. 

Gov. Gavin Newsom has previously opposed earlier wealth tax proposals in the state, saying that the idea is "going nowhere in California," while billionaire hedge fund manager Bill Ackman, a New York resident, spoke out against the California proposal in a December 29 social media post.

"I am opposed to wealth taxes because they effectively represent an expropriation of private property and have many unintended and negative consequences that have occurred in every country that has launched such a tax," Ackman wrote.

Here's what to know about the proposed California billionaire tax and its potential economic impact. 

What is the billionaire wealth tax?

The billionaire wealth tax is a proposed ballot measure created by the Service Employees International Union-United Healthcare Workers West (SEIU-UHW), a union representing more than 120,000 health care workers and patients in California.

If passed, the measure would levy a one-time 5% tax on the wealth of the state's billionaires, although it would not tax their income. According to California's attorney general, the tax would be applied to assets including:

• Businesses
• Securities such as stocks and bonds
• Art
• Collectibles
• Intellectual property
  

Real estate and some pensions and retirement accounts also would be excluded from the tax.

If voters pass the initiative, billionaires in the state would have to pay the tax in 2027, although they could opt to spread the payments across five years for an additional annual nondeductible charge of 7.5% of the remaining unpaid balance, according to the text of the proposal.

How would the tax revenue be used? 

About 90 cents of every $1 raised by the tax would be spent on health care, while the remaining 10 cents would be earmarked for food assistance or education, the proposal states.

According to the SEIU-UHW, the impetus for the billionaire tax stems from the Republicans' "big, beautiful" tax and spending law, which includes about $1 trillion in spending cuts over the next decade to Medicaid, the health care program for low-income Americans. Medi-Cal, California's Medicaid program, is slated to lose $190 billion in funding over the next decade due to those cuts, according to the proposal.

"The purpose of the 2026 Billionaire Tax Act ... is to protect access to high-quality, equitable health care, and to support funding for kindergarten through grade fourteen public education and food assistance programs, by raising revenue from a one-time tax on billionaire wealth," the proposal states. 

How much money could the billionaire tax raise for California?

California would likely raise "tens of billions of dollars from the wealth tax," according to a Dec. 11 analysis by the state's nonpartisan Legislative Analyst's Office. 

However, the group noted that quantifying the exact amount potentially raised by the tax is difficult because it's unclear what actions billionaires might take to reduce their tax burden, and because much of their wealth is based on stock prices, which continuously fluctuate, the analysis noted.

What steps are needed to pass the wealth tax?

First, the measure needs to collect enough signatures to get on the ballot, with Ballotpedia putting the number at about 875,000. If it draws sufficient public support, the measure would appear on the state's ballot in the November general election. 

Once on the ballot, the measure would pass if it received a majority approval. 

Do the rich move when facing wealth taxes? 

Some critics of wealth taxes contend that such policies drive rich Americans to move to low-tax states. Yet previous research has found that millionaires generally don't relocate just to get a tax cut. 

Massachusetts offers a recent example. The state introduced a 4% tax on millionaires in 2023, with the new revenue helping fund free school lunch for the state's schoolchildren. While some millionaires may have left to avoid the tax, a May analysis from the Institute for Policy Studies found that the number of millionaires in Massachusetts rose nearly 39% in the two years after the tax took effect.

Have any billionaires announced plans to move over the California tax proposal?

It is unclear whether a one-time tax on billionaires, with their much deeper bank accounts, could spur an exodus in the state. Critics of the proposal have noted that tech billionaire Peter Thiel announced on Dec. 31 that his private investment firm, Thiel Capital, has opened a Miami office. 

The new location "will complement Thiel Capital's existing operations in Los Angeles, California," according to the statement, which didn't mention the California proposal. 

Craft Ventures, a venture capital firm co-founded in 2017 by billionaire tech investor David Sacks said on December 31 that it had opened a new office in Austin, Texas. The firm added that Sacks, who also serves as a White House adviser on AI and cryptocurrency, had relocated to Austin earlier that month, although it didn't mention the proposed wealth tax. He had previously resided in San Francisco.