California has rejected wealth taxes in referendum in a referendum where the ‘no’ campaign was largely funded by self-interested billionaires. It’s the right result for the wrong reason, says Kristian Niemietz

The final results are not in yet, but unless the remaining uncounted votes are wildly out of the tune with the counted ones, California’s wealth tax proposal has been defeated at the ballot box. 

‘Proposition 40’ would have meant a one-off tax of five per cent on net wealth above a threshold of $1bn, payable by people who were residents of California in the beginning of 2026, meaning that leaving the state in order to avoid the tax would not be an option. 

For those of us who are critical of the current wealth tax fad, though, this referendum victory could be a poisoned chalice, emboldening supporters rather than discouraging them. The opposition may win the referendum, but lose the political narrative. 

California is home to about 260 billionaires, and the No side in the referendum relied heavily on donations from them, or more precisely, a prominent subset of them. Google co-founder Sergey Brin alone contributed over $100m to the campaign. Additional donations from reasonably well-known super-rich people brought the total campaign budget up to about $300m, which enabled them to easily out-spend the pro side by a ratio of almost ten to one. 

In one sense, the reliance on billionaire support is wholly unsurprising. Suppose you think wealth taxes are a bad idea, and you want to run a campaign against them. Who do you ask for financial support? Of course that’s going to be the people who have both the money to support your campaign, and an obvious interest in doing so. The average Joe is not going to spend money on preventing the introduction of a tax that they will never pay. Sure, opponents will argue that the economic cost of a wealth tax will ultimately fall on the average Joe, not just – or even primarily – on the billionaires who make the transfer to the tax office. But that argument will not be remotely obvious to most people: it takes a lot of explaining, and in order to explain it, you need to be able to finance a campaign first. You are not running a year-long education campaign about tax incidence, second-order effects and unintended consequences. 

However, while convenient in the short term, opposing wealth taxes in this way comes at a long-term cost. By relying so heavily on the support of people who have an obvious financial self-interest in opposing wealth taxes, you contribute to the impression that financial self-interest is the only reason why someone could possibly oppose wealth taxes. In that way, you play into the hands of their most populist proponents. 

I have debated wealth taxes multiple times over the past 18 months or so, on TV, on the radio, at university debating societies. I have found that different people support wealth taxes for very different reasons, and in different ways. The more fair-minded supporters will accept that there are serious, legitimate economic arguments against them. It is just that they – and this is where we differ – do not see this as a reason for abandoning the idea altogether. For them, it is just a reason to be ultra-careful in the design of a wealth tax, and to get the details right. 

Polanski-style slopulists, on the other hand, refuse to debate in such terms. They will tell a story in which modern politics is a battle between The People, who are good and pure, and The Billionaires, who are rapacious, extractive and divisive. The Billionaires impoverish The People, and then they engage in a divide-and-rule strategy, using their obscene wealth to distort public debate, and foment Hate And Division among The People. In that version of events, economic arguments are just disguised class interests. If you oppose wealth taxes, you must be either a plutocrat defending your ill-gotten gains, or you must be a mercenary in their pay. 

If I tried to peddle a story along those lines, I would treat the California referendum as a godsend. Had Proposition 40 won, its supporters would now have to deal with the practicalities of a wealth tax, and in due course, with a backlash from disappointed campaigners. Now, the Polanskiites will interpret the result as just another example of billionaires subverting democracy. They will interpret the very defeat of the wealth tax as an illustration of why a wealth tax is necessary in the first place. 

That’s why, as a critic of wealth taxes, I have to admit that I almost wish the other side had won. 

Dr Kristian Niemietz is the outgoing editorial director of the Institute of Economic Affairs (IEA). He is the author of the report ‘Fool’s Gold: The case against the wealth tax, and suggestions for alternatives’.