California Governor Gavin Newsom has proposed a retroactive tax aimed at the approximately 220 billionaires residing in the state as of 2025. This initiative, sponsored by the Service Employees International Union (SEIU) under the "2026 Billionaires Tax Act," would impose a one-time 5% tax on individual wealth exceeding $1 billion, based on net worth in 2026. The tax is designed to apply to billionaires who lived in California in 2025, making it difficult for them to evade the tax.

Proponents of the tax argue that its one-time nature will prevent billionaires from leaving the state. However, critics suggest that the precedent set by this tax could lead to future taxation efforts, potentially prompting wealthy individuals to relocate to states with more favorable tax environments.

California has experienced a significant outflow of residents and businesses in recent years, with many moving to states such as Florida and Texas, which offer lower or no income taxes. Notable companies, including Chevron, have relocated their headquarters from California, citing the state's high taxes and regulatory environment as contributing factors.

The state has faced criticism for its fiscal management, with reports indicating a loss of taxpayers at a rate of approximately one every minute and 44 seconds. This trend has raised concerns about the sustainability of California's tax base and its ability to fund public services.

Economists have pointed to the potential long-term consequences of a highly progressive tax system, suggesting that the departure of high-income earners could undermine state revenue. The Laffer Curve, a theory in economics, posits that both excessively high and low tax rates can lead to reduced tax revenues, indicating that tax cuts might enhance revenue collection.

As California navigates these economic challenges, the implications of the proposed billionaire tax remain to be seen, particularly in the context of broader discussions about wealth distribution and fiscal responsibility in state governance.