Various blue states are facing towering budget deficits as federal pandemic payments end and expenditures rise. The result is a widening gap between the two parties on tax policies as Democratic leaders seek to avoid massive budget cuts in favor of tax increases. Two of the most economically moronic measures can be found in California and Illinois where leaders could be pushing high-tax residents out of their respective states.
In California, Gov. Gavin Newsom is seeking a billionaire tax that would target roughly 180 individuals who are expected to remain in the state, like some voluntary canned hunt. In Chicago, Mayor Brandon Johnson is facing the same exodus of businesses as California. His solution? A head tax on the very large corporations is needed for the city to survive. Even the far-left governor, J.B. Pritzker, is opposing the move as economically suicidal. However, groups like the teachers’ unions are pushing for this and other new taxes to support, among other things, a bloated pension plan for its members.
The Great Sucking Sound
California has long been bleeding tax revenue as residents move to states like Florida and Texas. Corporations have followed suit with major companies either moving out of the state or closing stores in cities like San Francisco. Despite the towering deficit, Newsom and the Democratic Party continue to spend wildly on a boondoggle bullet train and to engage in last-minute redistricting to gerrymander the state further. They have also moved to extend Medi-Cal to illegal immigrants at a massive cost to the budget. Newsom is also pushing ahead with a Commission to pay reparations to black citizens.
With a governor campaigning virtually full-time for president, spending is expected to continue apace until 2028. So, where can a presidential aspirant find money without losing votes? The obvious choice is with the wealthiest citizens.
California unions and liberal academics are demanding a new tax on those billionaires who have not had the sense to leave the state.
The “2026 Billionaire Tax Act” would hit roughly 180 citizens with a new tax demand to plug holes in the state’s health care system. While denied by Democrats in Congress, the “One Big Beautiful Bill” cut off funds used for illegal immigrants ‘ health care, which produced a shortfall for California. That is part of the money Democrats want restored, or they will keep the government closed. Another 10% of the funds would be used to support public K-12 education.
Two of the academics pushing this measure are UC Berkeley economics professor Emmanuel Saez, law professor Brian Galle, and Stanford law professor Darien Shanske. They insist that there is history to support the success of such wealth taxes in a few cities and states like Washington. Advocates are counting on the unions to get the initiative on the ballot, and they know it is always popular to soak the rich. Teachers’ unions have also demanded wealth taxes in states like Massachusetts.
Wealth taxes are in vogue among Democrats. In every election, Democrats insist that the wealthiest are not paying their fair share of taxes, even though the top 1 percent pays more taxes than the bottom 90 percent combined. It is an ageless mantra. Figures like Sen. Elizabeth Warren (D., Mass) sought to ride the wealth tax into the White House, unleashing what she thought would be a class warfare over tax policy. She thrilled many on the left by declaring that she was coming after “the diamonds, the yachts, and the Rembrandts too.” Then, New York City Mayor Bill de Blasio, another Democratic presidential contender at the time, also promised that “we will tax the hell out of the wealthy.”
In the California effort, fewer than 200 Californians would bear the new tax burden —the wealthiest 0.0005% of residents. They will face a 5% tax on everything they own.
For years, some of us have opposed wealth taxes on constitutional grounds in the federal system and practical grounds in the state systems. Practically, you must create a new bureaucracy for the estimation of wealth in everything from art to boats to real estate. Under the plan, the Franchise Tax Board would require all California residents to declare their total net worth, including interests in private companies, real estate, art, and intellectual property. The individuals would then have to pay the debt in full or spread over five years with interest, with steep penalties for underreporting.
They hope to raise $100 billion in a flash and then divvy it up among their favorite causes. Of course, the problem is that, while some assets like homes are not mobile, the owners are. California expects these individuals to sit through a campaign where they are treated as the fatted calves for the slaughter, and then sell off five percent of their property for the privilege of staying. There is an obvious alternative that billionaires like Elon Musk have already taken: they can get the heck out of California. Many have already done so. Indeed, California moved to force those leaving to pay a tax.
In the meantime, there is no reason to believe that, once legislators can tap into wealth taxes, they will stop at billionaires as they move the threshold wealth line down for greater revenue streams.
These measures seem to me as highly dubious and likely to make things much worse. I will admit that Milton Friedman ruined me during my college years at the University of Chicago. However, California is already one of the highest tax states in the union. It is experiencing massive homelessness, crime, and other problems. At the same time, it is one of the most expensive places to live or have a business. In the mix of these elements, it wants to tell the highest earners now that they will be treated as basic digestives for Democratic policies. It will likely not only cause many to leave but will discourage others from coming with their income and businesses. Could you imagine a billionaire moving to the state to arrive just in time to be clipped for five percent of their wealth?
Rather than address runaway spending and poor management, Democrats and unions are treating the wealthy as static chumps who will not have the sense or desire to leave. It will be like a canned hunt with the cage door open.
Keep in mind that these are people who have spent their lives making money and optimizing conditions to make more money. The advocates are counting on billionaires just loving the state so much that they will stay at virtually any price. We will see.
As I discuss in my forthcoming book, Rage and the Republic: The Unfinished Story of the American Revolution, there is a common myth that the top five percent of this country do not “pay their fair share.” However, putting that debate aside, the question is whether it will produce more revenue than it costs the state in the long run. As these politicians campaign on clipping the “fat cats” who are not paying their fair share, many are likely to follow Musk with their money and their minions.
Head Hunters with a Dwindling Game Population
In my home city of Chicago, the economic conditions are becoming even more dire. Mayor Brandon Johnson has proven nothing short of a disaster as the city has spent itself into a deep deficit. In the meantime, many businesses and residents are fleeing the crime and high taxes. Any first-year economics student would see this as a time to rebuild the economy by attracting new businesses and retaining existing businesses.
Not Brandon Johnson. The creation of the far-left Chicago Teachers’ Union (CTU) came as Johnson took office with gimmicky plans for city-supported stores and open sanctuary policies. When money ran out, he became increasingly desperate and inflammatory, often accusing critics of being racists. He has a $1 billion deficit and, rather than cut the budget, he has tried every possible measure to raise money, including a ridiculous bond that even liberals on the City Council said would send the city into a rat hole of debt.
Moreover, the Regional Transportation Authority, which oversees the Chicago Transit Authority, Metra, and Pace, is now expecting an almost $900 million shortfall by 2028. Again, the impulse is not to view the RTA budget and operations as unprofitable, but to raise fares and impose new taxes, including fees on DoorDash and delivery orders, higher tolls, and real estate transfer taxes.
However, even Pritzker thinks that Johnson and the unions are nuts on reintroducing a corporate “head tax.” Barely able to convince many companies to stay in the state, Chicago would actually make it more costly to hire Chicagoans with an additional $ 21-per-employee tax. Chicago previously tried a smaller $2 head tax, which was ended by Democrat former Mayor Rahm Emanuel because it was seen as discouraging businesses from coming to the city. Johnson thinks that an exponential increase will now make it work. It is like preventing the sinking of the Titanic by increasing the amount of seawater.
However, Johnson listens to the unions and particularly the teachers’ unions, and they want a slew of new taxes to support their bloated pension fund and other city programs. In addition, they want to impose a 5% levy on corporations with global payrolls exceeding $8 million, applied to all compensation paid to employees earning more than $200,000.
It would further suppress economic growth and increase the revenue deficits. At some point, the city will go the way of Detroit in an irreversible plunge toward insolvency.
Over the last decade, Chicago has lost one out of five businesses and currently ranks as a city with the highest commercial property tax in the nation. However, Johnson and the unions want to double down on more taxes, as if there were magical infusions of money with no consequences.
There is even a plan to increase Chicago’s “cloud tax” and a new 50-cent-per-user “social media amusement tax.”
The CTU is calling for a coercive campaign to force the remaining thriving corporations and institutions to pay more. In a publication titled “Chicago is NOT broke: millions on the table if wealthy pay their fair share,” the CTU called for Payment in Lieu of Taxes (PILOT), a program where “wealthy universities and private hospitals that currently pay no property taxes” would pay a lump sum payment in exchange. My alma mater, the University of Chicago, is an intellectual hub that brings in intellectuals, research, and students to the city. The CTU wants to hit it and hospitals with PILOT charges.
It also wants to hit landlords with new profit taxes and penalize vacant properties.
With the recent passing of my mother, I gave serious thought to buying her home and investing in its total restoration. It is a beautiful old home, but I could not imagine owning a property in Chicago despite my love for the city. It is simply not economically feasible. It was a hard decision. I would love to invest in the city of my birth. However, the mayor and the City Council seem hellbent on destroying this city. In the meantime, the state is also spending wildly. The result is that many of the people I grew up with have left the city, and most have closed their businesses.
With the rise of Democratic Socialists in California, Illinois, and New York, these economic policies are likely to spread only to major cities. I fear that the result will be disastrous for our great cities. There is a perverse incentive for some of these politicians. Wealthy Republicans and conservative residents are fleeing these states, leaving Democrats more solidly in control. However, they are cutting off the top income earners and job creators. With the cutting off of subsidies under the Trump Administration, they must either reduce spending or tax those remaining.
We have seen this before, and it is not pretty.
OT, meanwhile in the failed state of IL, DHS marks ‘one of the most violent days’ of Operation Midway Blitz with several arrests
https://www.foxnews.com/us/dhs-marks-one-most-violent-days-operation-midway-blitz-several-arrests
(Two of the most economically moronic measures can be found in California and Illinois where leaders could be pushing high-tax residents out of the state.)
And mamdani says “Hold my beer”.
And Newsome has WH ambitions? What is he going to run on? “Look how poorly I governed CA!” The failed states of CA and IL should serve as a warning to everyone of what poor Democrat leadership will get you. Sad part is despite all the warnings, they just seem to keep doubling down on even more bad policies, and keep digging themselves into a deeper and deeper hole.
Can one of the democrat leaders quantify the term “fair share” when it comes to taxes? Seems to me it is an ever-expanding number that never reaches an end point as dems appetite for increased tax revenue is insatiable.
“And Newsome has WH ambitions? What is he going to run on? ”
I don’t think he has much ammo that would work for the general election, but for the primary he can at least claim that he is better than their previous nominee, the st’unt Kamaha Harris. Harris herself has been making noises about running again, but I’m guessing she just wants to be lucratively bribed to prevent that (not an unreasonable request, considering how much additional damage she could cause Dems if she does run).
They never learn, they just never learn.
The tax and subsidize paradigm is an Ouroboros model that favors kings and queens pursuing redistributive change and capital extraction schemes in Democratic/dictatorial regimes.
“Newsom is seeking a billionaire tax that would target roughly 180 individuals who are expected to remain in the state, like some voluntary canned hunt.”
Floyd initiated some discussion of Ayn Rand in the comments to yesterday’s blog (blog subject was Charlie Kirk memorial in LV). In that vein: any billionaire who would remain in California after such a tax regime is inflicted is the 21st century, real world, equivalent to James Taggart, and deserves exactly the same fate. To carry the analogy a bit further (possibly a stretch, I will admit), I have been skeptical for many years about any realistic possibility of a “Galt’s Gulch” being established and drawing the productive from the entire US. However, it seems to me that the possibility of such a thing happening with a locus restricted to California is steadily increasing.
“. . . the possibility of such a thing happening . . .”
In principle, that’s been an actuality for years. Note the wealth flight from looter states like CA, IL, NY to relatively free states like FL and TX.
“Note the wealth flight from looter states like CA, IL, NY to relatively free states like FL and TX.”
Understood, but Galt’s Gulch” was more than just the phenomenon of those with ability abandoning a realm dominated by irrational, incompetent, craven thieves, it was about creating a specific place where those of ability could create, and gather the fruits of their creations, without being molested by a malevolent state. Today, in some ways, the internet appears to diminish the necessity of a single location to accomplish that, but I see governments everywhere making their best effort to forever sully any semblance of true privacy on the net, so nothing there is assured for the future. I’m not claiming that it is reasonable to expect an actual, physical “Galt’s Gulch” to materialize in the near future, but things are beginning to happen that show at least a little bit of promise. I note that Millei just won a huge political victory in Argentina.
I remember when (long before Newsom) California was upset by all the people that had worked there and saved money in their retirement accounts (tax exempt) and when they retired would move out of state. California believed that since they earned the money in California, that withdraws should be subject to California state income tax, even after you had moved to another state. Now that would be a gold mine.
” Now that would be a gold mine.”
Do you really imagine that such an edict would be enforceable? The states to which those retirees move obviously garner significant benefit from those who have relocated there, along with their money. What you refer to would require that those states voluntarily give up those benefits and force repatriation of that money to California, and could ultimately require those states to extradite the owners in the event of noncompliance. Maybe that would have been vaguely possible in the past era of massive Federal aid to states (that could be subject to threat for noncompliance to placate California), but considering the current trend of Fedgov discontinuing aid to states for programs that are not Constitutionally authorized (a trend that imo is goiing to continue, and quite possibly accelerate) I think that to be highly unlikely.
They tried it with the retirees from Los Alamos National Laboratory (located in NM). For years, employees of LANL were employees of the University of California system and “donated” into CALPERS, even though they resided in NM. The retirees took it to court and won. Now LANL is run by an industrial conglomerate.
“… it is not pretty…?” A more descriptive and accurate label would be “hideously ugly.”
Smash N Grab?
Chicago, with its eruptive waves of taxation, can be likened to ancient Pompeii beneath the shadow of Mount Vesuvius—an affluent city oblivious to the rumblings of its own destruction. Pompeii’s wealthy citizens ignored the warning signs, clinging to their comforts until the volcano’s fire and ash consumed them. Likewise, Chicago’s elite seem unwilling to recognize the approach of economic catastrophe. These new tax initiatives—the city’s own fire and ash—may appear sustainable for a time, but the moment of critical eruption may come swiftly, leaving Chicago no longer a sanctuary for anyone.
While the current Federal tax code was passed as an Amendment to the Constitution (until that point direct taxes on citizens was unconstitutional), it only applied to about 4000 people (much like the tax scheme of California) and no way would Madison, et al, would have believed it constitutional, as it blatantly treats some citizens unfairly when compared to the others. As you rightly point out, the vast majority of taxes are paid by the wealthy, with almost 50% of citizens paying no federal income taxes, and much of the federal spending doesn’t reach those paying the bill; it is akin to America going out to dinner together, and then giving the bill to the wealthiest at the table (without the coercive power of government with you, try that sometime). Spending by all levels of Government would be dramatically different if all citizens had skin in the game, and I wish that Professor Turley would take forward a case to the US Supreme Court to challenge current tax policies as unequal treatment under the law (or at least sponsor a series of debates on the topic), and I would be happy to help pay for the effort.
Obviously not an economist, just Sunday morning gobbledygook.
Your comment makes no sense, and adds nothing to the discussion, but at least you got the day right.
Bless your heart.
“it is akin to America going out to dinner together, and then giving the bill to the wealthiest at the table”
A more accurate analogy would require that the bill be given a a wealthy person at the table who did not consume and food or drink…
Prof. Turley – thank you for the well deserved tribute to Milton Friedman.
Did you encounter Ronald Coase or Fredrick Hayek other Nobel prize in economics winners at university of Chicago ?
What a major stoopid question. Both are dead.
It seems they’re now getting to those who have been supporting them all along. I’m sure George Clooney, Rob Reiner et.al will be the first to step up and pay let’s say 80%, surly good comrades can live on 20% of their wealth. The downside for the rest of us is they’ll suddenly decide to move to other states and wreck them. Like locusts they’ll devour one location and try to consume another. Kind of prophetic that Ellen and Rosie left the country, was it really about Trump or did they see this coming?
Clooney et al are not billionaires. But your comment shows that you have socialistic tendencies when someone has more than you.
Margot,
Read the other day, Mark Wahlberg moved from the failed state of CA to the succeeding state of FL. Him and others see the writing on the wall and are getting out.
Outmigration cost California $24B in departed incomes as poorer people move in
https://justthenews.com/nation/states/center-square/outmigration-cost-california-24b-departed-incomes-poorer-people-move
Of course when the billionaires leave, they will just rephrase it as “Those multi-millionaires need to pay their fair share!” And so on. Problem with that, they will soon be taxing themselves.
Wouldn’t that be marvelous? 😉
@Upstater – yes, I saw that 37 mil digs quite palatial. Wahlberg is OK, big on veterans, Stallone moved there too. The big concern are the ones bringing their baggage. Like I said Locusts leaving skeletons in their wake. Desantis better start vetting on new migration to Florida. The negative which is a positive, hurricanes and heat usually sends them packing after a few years, they can’t take either.
Probably the UK won’t get nuked, Margot. Hard to say about fallout drift…
Is there something wrong with my subscription? My comments never seem to appear.
Where are all the Democratic Trolls today that see a tax rate of 120% for everyone but Democratic politicians as a reasonable tax rate. Sadly their comedy act is missing so far today.
@Anon says: “Where are all the Democrat trolls”
Bite your tongue, maybe the Blue Bananas had a late night at some ICE location? I’m sure they’re not far behind.
Coming soon to NY.
I have an idea for them. A “Departure tax”. Anyone leaving Chicago must pay 50% of their net worth to escape. And make it retroactive for 10 years. That’ll do it. Finally they will pay their “fair share”.
Highly unconstitutional.
California already tried this. Not sure if your comment is serious or not but even in jest that’s a pretty crazy suggestion to make.
Stupidest idea I have ever heard. Let’s punish people for the freedom to move wherever they want. The problem is sooner or later you run out of other people’s money to spend comrade.
satire…
To quote Margaret Thatcher.
In a fashion, NY tried to do that retroactively, claiming residence in NY after they moved and established homesteads in other states.
As long as the rest of America is not on the hook to bail out these National Socialist Democrats, they can sink into the abyss. Hopefully we aren’t responsible for unfunded teachers’ pensions in these cities and states.
One time I took a dive into one specific thing in California, who gets funded by how much and who those folks fund in return. The amounts weren’t large but the orgs getting funded were mostly paying high salaries and doing nothing. A million here, ten million there, small numbers, small orgs, but it adds up, and why should people be paid mid six figures for doing nothing.
Then there is the issue of who pays. Lately there’s been a lot of talk of billionaires. Fine by me, who can even spend a billion, but when I do the numbers it doesn’t work out. I made money by looking at the numbers. If we want to pay off debt we have to tax those very people who are likely screaming about billionaires. There are maybe 6 to 10 million high net worth families in the US, that’s people of over a million not including real estate. The top 10%, twelve million households in the us bring in six figures, somewhere over 100 thousand under 200 thousand. Taxing a whole lot of people, brings in more revenue than taxing just a very few people a lot.
Most people are stupid about money, we shouldn’t be, we are a country and we should have serious people doing the money thing.
Anonymous – this is exactly what you would expect when an institution gets money without having to earn it.
Bussinesses earn money by meeting the needs of consumers. They must compete with other businesses for the same money from the same consumers. To surviive they must deliver a better product or consumers will not pay them.
Further having recieved money from a consumer for a product – they must be wise stewards of that money – it must be used efficiently to create more products that consumers want. Every part of the process from end to end has well aligned and ecellent incentives.
First real value must be delivered.
Then the revenue earned must be used efficiently to create more value and earn more revenue.
It is a virtuous circle. Encouraging value and efficiency at ever step.
When govenrment does something – it takes money buy force. It does not need to earn that money.
When it uses that money to attempt to accomplish something – there is no incentive to do so efficiently – there is little incentive to even accomplish the task the money was collected for.
The incentives when govenrment collects money are NOT to efficiently produce value, but to hand that money out to supporters.
To payoff political debts, or to spend that money to accrue more political power.
You clearly are not an economist. You write nonsense.
“when I do the numbers it doesn’t work out. I made money by looking at the numbers”
This has been documented in many ways for many years, including specifically calculations about paying off the US national debt. To wit, the outcome is that you could confiscate the entire wealth of the richest 10%(might even be 20%) here, and you wouldn’t even come close to that number.
Newsom is also pushing ahead with a Commission to pay reparations to black citizens.
__________________________
For a state that never had slaves. Foolish dems
Just vote buying and nothing more!
The state of California plans to give “reparations” to black residents, and oh man, it won’t be cheap.
California’s reparations task force is meeting today and tomorrow to discuss the costs, but economists are already warning that it could cost the state $800 billion!
California’s total annual budget currently sits at about $300 billion – these reparation costs will nearly triple the state’s existing budget. – notthebee
Never going to happen. An attempt to buy black voters with lies.
How many black people really believe this? I know some do but.
For all those Dems who want reparations, an equal amount of reparation payments should go to descendent’s of the Union soldiers who won the war that ended slavery and the descendent’s of Confederate soldiers who loss everything and lived for generations in poverty in the south.
Seems you didn’t get the memo dummy. The bill is on his desk since last year and he avoids signing it. No one in CA will ever get reparations. It all political theater to get black votes.
I’m sure glad I sold off all my slaves before the market collapsed.