FOX Business host Marcus Lemonis discusses billionaires fleeing California to avoid proposed wealth tax on ‘The Bottom Line.’
A proposed tax targeting California’s wealthiest residents is getting strong support among potential voters, but critics warn it would discourage investment and cause an exodus of high-income earners and businesses.
“I think it’s a really disastrous idea for the economy,” Adam Michel, director of tax policy studies at the Cato Institute, told Fox News Digital. “It’s both misdiagnosing the problem and it’s not going to fix the underlying problem.”
The “California Billionaire Tax Act of 2026” would impose a one-time tax equal to 5% of net worth on people making more than $1 billion, according to the California Legislative Analyst’s Office (LAO). Covered assets will include businesses, securities, art, collectibles and intellectual property.
The estimate won’t include real estate owned by an individual in their own name (or through a revocable trust), but real estate owned by a company they own may still include the tax because it can increase the value of that business.
TAX FIGHT PUT CALIFORNIA INTO CRASH AS BILLIONAIRES LEAVE PURPLE STATES
An activist holds a sign during the “Rally to Say No to Tax Breaks for Billionaires and Corporations” at Upper Senate Park on Capitol Hill on April 10, 2025, in Washington, DC. (Photos by Alex Wong / Getty Images)
Supporters — including SEIU-United Healthcare Workers West (SEIU-UHW) — say the move is an emergency response to save the state’s health care system from “collapse” due to possible federal cuts.
According to the LAO analysis, “90 percent of the money will have to be spent on public health care services” while the rest will go to administrative costs, education and food aid.
However, Michel argues that wealth taxes do not work, saying that they weaken incentives to build businesses, create administrative headaches and discourage investment in countries that have tried them.
He also says they rely on a flawed “fixed pie” view of economics that assumes wealth can simply be redistributed through taxation, but actually results in slower growth and worse outcomes for everyone.
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Michel says a 5% wealth tax will take money out of businesses, leaving owners unable to reinvest, expand, and rent. (iStock / Stock)
Michel also said that the wealth tax is different from the income tax because it is assessed on accumulated assets rather than annual income and can translate into a greater burden for business owners.
If a business earns anything less than a 5% return, every dollar of profit is taxed, which translates to an income tax rate of 100% or more, leaving no profit for the business to grow and maintain that asset.
Michel noted that this proposal was even opposed by Gov. Gavin Newsom.
“You know very well that this proposal will lead to a drain on California’s tax base,” he said.
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California Governor Gavin Newsom has come out against the 2026 Billionaire Tax Act. (Photos by Fred Greaves/Reuters/Reuters)
Michel warned that the damage will not be limited to the estimated 200 billion targeted for this plan. Because most wealth is held in “productive assets” such as stocks in companies, real estate and machinery, he warned that the tax would penalize investment that drives the broader economy.
“We will get less housing, we will get less investment in machinery and equipment, we will get less investment in new companies,” said Michel. “That ultimately makes everyone worse.”
California already has the most progressive tax system in the industrialized world, according to the Fraser Institute.
Wealth taxes have been tried around the world and failed, he pointed out, and only a few OECD countries still use them since their peak in the 1990s. In Spain, what was proposed as a temporary temporary tax ended up being a permanent tax on the rich. The same is happening in California, he warned.
“States like California have an endless hunger to take other people’s money,” he told Fox News Digital. “And if they succeed in this, there is nothing stopping them from renewing this tax in the coming years.”
CALIFORNIA WILL REGRET BILLION MIGRATION, WASHINGTON POST WARNS
A person holds a ‘Resist Billionaires’ sign as protesters demonstrate against Tesla CEO Elon Musk’s Department of Government Efficiency (DOGE) plans during a nationwide “Tesla Takedown” rally outside a Tesla dealership on March 29, 2025, in Pas. (Mario Tama/Getty Images)
Michel added that the threat alone would encourage high-income citizens to leave the state.
The bill’s sponsors at SEIU-United Healthcare Workers West say it’s about making billionaires pay their “fair share.”
“California’s billionaires are paying far lower tax rates than working families pay on every paycheck. And soon, major cuts to health care funding will destroy key parts of California’s health care system,” Suzanne Jimenez, chief of staff at SEIU-UHW, told Fox News Digital.
He warned “local hospitals and emergency rooms will close their doors forever” unless voters approve the Billionaires Tax so that “millionaires pay their fair share” with a “one-time emergency 5% tax.”
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SEIU members protested against ICE on Friday, Jan. 23, 2026. (Hyoung Chang/The Denver Post/Getty Images)
He rejected “fantasy claims” from “a few billionaires and their highly paid advisers” that there would be immigration to California ahead of the Jan. residency deadline. 1, 2026. Citing a “lack of public reports or confirmations,” he says it “doesn’t appear to be true,” and that the “vast majority” of the estimated 200 billionaires “appear to have chosen to stay.”
Jimenez said nurses, health care workers, teachers and firefighters “pay taxes on almost every dollar they earn,” and says that without this measure, “higher health care costs and higher taxes will be passed on to millions of Californians” who already face “increasing health care costs and doctor costs.”
He called the controversy “a simple distraction” while his union’s “120,000 health care workers” are focused on keeping hospitals and ERs open for “40 million Californians.”
“While these claims don’t affect a small number of billions, our union’s 120,000 healthcare workers are still focused on keeping California’s hospitals and ERs open for the 40 million Californians who depend on them,” he added.
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Although the proposal is still in the signature-gathering phase to qualify for the November ballot, it has received strong support from potential voters, according to a new poll. A February 2026 Nestpoint poll found 60% of voters were likely to roll back the wealth tax, with the majority of respondents saying the move would cause out-of-business and cost local jobs.
Fox News’ Kristen Altus contributed to this report.
