California Billionaire Tax Debate: Wealth Taxes May Be Coming

In recent news, Mark Zuckerberg is joining the California exodus of ultra-wealthy taxpayers and purchasing a home in Florida. The catalyst is California’s proposed 2026 Billionaire Tax Act, a ballot initiative that would introduce a state-level tax on net worth, effective January 2026. If the initiative makes the November ballot and passes, it would impose a one-time 5% tax on the accumulated net worth of California residents with a net worth exceeding $1 billion. Proponents argue that the measure would help cover deficits in the California health care system resulting from cuts under the One Big Beautiful Bill Act passed by Congress last summer. 

Unlike an income tax (which applies to earned income), this proposal applies to assets such as public equities, private business interests, investment real estate, and unrealized gains. Directly held real estate, most retirement accounts, and a few other asset types would be excluded. The impact is narrow: estimates suggest roughly 200 Californians would meet the $1 billion threshold. 

So, why should the merely wealthy care about a “Billionaire Tax”? Because tax thresholds have a long history of declining. Once the administrative framework for valuing and taxing net worth is in place, it becomes significantly easier for a state facing a structural deficit to adjust eligibility levels. A billion-dollar threshold can, over time, become $100 million. Then $50 million. 

The concern for affluent families is not necessarily about California’s proposed Billionaire Tax, but more about setting a precedent. California has historically functioned as a policy laboratory. When new tax concepts gain traction, other states often explore similar models. 

There are other wealth-based proposals in states such as Hawaii, Illinois, and Washington. In Massachusetts and Maryland, lawmakers have pursued elevated capital gains surcharges as an alternative to increasing taxation on concentrated wealth without formally adopting a net worth tax. 

Momentum matters in public policy. Once a concept becomes politically viable in one large state, it often migrates. This is not the first time the concept has surfaced; it has even come up at the federal level. 

In 2021, federal lawmakers advanced a “Billionaire Minimum Income Tax” proposal that would have taxed unrealized gains, meaning individuals could owe tax on portfolio appreciation even without selling assets. That proposal was part of the Build Back Better Act and ultimately stalled. The idea, however, did not disappear; it set a precedent by making it part of the conversation.   

Recent polling from the Economist and YouGov suggests a majority of Americans, often in the 55-60% range, support higher taxes on billionaires. Politically, wealth concentration remains a resonant issue. National figures have framed similar proposals as “common sense” measures designed to redirect concentrated capital toward healthcare, housing, and infrastructure. According to the Federal Reserve, income inequality is the highest it’s been since they began tracking household wealth in 1989. The top 1% of households owned 31% of all U.S. wealth in 2025. 

The larger fiscal question is not simply how much a wealth tax raises, but rather how the ultra-wealthy respond. High-income households are disproportionately responsible for state income tax revenue. When even a small percentage of top earners relocate, the revenue impact can be magnified. Variations of this dynamic have played out in cities such as New York and Portland, where local tax increases coincided with outward migration among higher earners. 

When state and local governments tax highly mobile capital, movement becomes part of the equation. Not universally, but meaningfully enough that policymakers must account for it. California’s leadership has historically expressed caution about triggering capital flight. But populist energy around taxing extreme wealth is real, and it spans beyond one election cycle.  

Strategic Considerations for Affluent Families 

At this stage, the proposal is not law, and it may never become law. But families with significant appreciated assets in high tax states may consider moving their state of residence or domicile. It’s sometimes possible to gift assets out of state or restructure trusts in more favorable jurisdictions. We are here to help plan your strategy and recommend a qualified attorney to implement the necessary legal documents.    

None of these steps should be reactive or rushed because domicile changes must be legitimate, especially from California, which has a history of going after taxpayers who try to leave. Trust migrations must be properly executed. Some might be interested in stress-testing liquidity under a hypothetical net worth tax scenario.  

Please reach out to your Wealth Manager with questions.