The proposed California wealth tax could end up costing the state more tax revenue than it raises, former White House economic adviser Tomas Philipson said.
Philipson, who previously served as acting chair of the Council of Economic Advisers, discussed California’s proposed wealth tax and its potential effects on businesses, investment and the state economy during an appearance on Fox Business’ "The Bottom Line" on Wednesday. The comments came as California’s Proposition 40, a proposed one-time 5% tax on certain billionaires, moves toward a November vote.
Wealth Tax Could Backfire
Philipson argued that California could lose revenue from existing taxes if wealthy residents respond to the proposal by leaving the state or changing where they invest.
"I mean, they’re going to lose so much more tax revenue on other taxes that’s going to swamp the gain, and that loss is going to swamp the gain that they collect in the new wealth tax, essentially," Philipson said.
He also defended wealth creation under capitalism, arguing that successful business owners can become wealthy by creating products and services that benefit consumers.
"Consumers gain about 15x relative to the earnings of these companies," Philipson said, arguing that people can also benefit by owning shares in successful businesses.
Coinbase Global Inc. (NASDAQ:COIN) CEO Brian Armstrong said he is considering relocating from California over the proposed wealth tax. Armstrong made the comments on "The Katie Miller Podcast" on Aug. 25, saying, "So we’re considering any or all options basically in terms of relocation."
Armstrong also called the proposal potentially unconstitutional and said it was "deeply un-American to seize people’s assets.
California Tax Debate Grows
The debate comes as Proposition 40 continues to draw political and business attention. A recent Berkeley IGS poll found 48% of likely voters supported the measure, while 41% opposed it and 11% were undecided.
The proposal would impose a one-time 5% tax on certain taxpayers with assets above $1 billion, with the money primarily directed toward health care.
Support is also split among California’s political leaders. Gov. Gavin Newsom (D-Calif.) has opposed the state proposal while supporting a federal wealth tax approach. Rep. Ro Khanna (D-Calif.) has backed the measure alongside Sen. Bernie Sanders (I-Vt.)
Opposition from wealthy residents has also grown. Alphabet Inc. (NASDAQ:GOOG) (NASDAQ:GOOGL) co-founder Sergey Brin has opposed the proposal and contributed to efforts fighting it.
Startup Concerns
Billionaire entrepreneur Mark Cuban has separately warned that the proposal could hurt California’s startup ecosystem.
Cuban argued that startup founders can become "cash poor, stock rich" after their companies reach billion-dollar valuations. He warned that a wealth tax could force founders to sell shares or borrow against them to cover the tax, while investors could become less willing to back California-based startups.
"I will make NOT being in California a pre requisite for an investment," Cuban wrote in response to the proposal.
That concern extends beyond startups. Earlier reporting also cited tax adviser David Lesperance, who said seven extremely wealthy Californians had already left the state ahead of the proposed tax, while venture capitalist Chamath Palihapitiya said he planned to remain in California and pay it.
Wealthy Californians Weigh Exit
Lesperance said some of his clients were already considering leaving California before the November vote. He said four had left before the proposal’s Jan. 1 residency cutoff and three more had departed afterward.
Palihapitiya has taken the opposite approach, saying he would remain in California despite opposing the proposal.
The growing divide has made the proposed tax part of a broader debate over whether California can raise substantial revenue from the wealthiest residents without encouraging them to move, reduce investment or restructure their assets.
Philipson made a similar argument when discussing broader government finances, saying the central issue is not how spending is financed but the level of spending itself. He said government spending ultimately has to be covered through taxes, borrowing or inflation.
Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.
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