This November, California voters will choose whether to implement Proposition 40, a one-time 5% wealth tax on billionaires to fund a failing health care system. It’s part of a disturbing trend toward socialism in the U.S., wherein people misunderstand basic incentives and how taxes that target the wealthy end up harming everyone.

High net-wealth folks like Larry Page, Sergey Brin and Peter Thiel already have preemptively moved out of state to avoid the tax. These and other billionaire departures have likely reduced Prop 40’s $100-billion expected haul by about a quarter. But these departures also risk killing the Golden Goose that has funded the Golden State’s bloated budget for decades.

California gets almost half of its personal income tax revenue from the top 1% of earners, so every one of these high-earner flights is also a major blow to the state budget for years to come, partially offsetting the one-time revenue from Prop 40.

At first blush, the exodus may seem like an overreaction, since the 5% levy sounds modest next to California’s 13.3% top marginal income tax rate, but that’s an apples-to-oranges comparison. Wealth is a stock, and income is a flow. The honest comparison to a tax on income would be a tax on the change in net wealth, or the return on an asset.

Under that calculus, the proposed 5% wealth tax is, in many cases, equivalent to a multiple of California’s sky-high top tax rate on income—and in some cases equivalent to an income tax exceeding 100%.

California municipal bonds yield roughly 4%, while 10-year Treasury notes yield about 4.5%. The wealth tax liability will exceed those returns, leaving investors at a loss. Average equity returns in the long run easily exceed 5%, so a good year might surrender one-third or half its gains to this wealth tax. But a flat year would require liquidating and surrendering capital.

Municipal bonds, a favorite among high-income earners because of federal tax treatment, deserve particular attention because Californians pay for that one. If large purchasers of these bonds suddenly eschew them because the after-tax rate of return becomes negative, the governments then must offer much higher yields to sell those bonds, increasing their borrowing costs.

That leaves less money in the budget for roads, water systems, schools, hospitals, etc., all because this wealth tax would destroy the incentives for billionaires to finance the Golden State’s public services.

Proponents of Prop 40 might say these analyses are irrelevant since it’s a one-time tax, but nearly all the revenue is already allocated to permanent and growing health care obligations. A single infusion of cash doesn’t solve the negative cash flow problem. Therefore, once California burns through these funds, the budget hole returns and another tax is needed.

Then there are exemptions which will create additional market distortions. Since real estate can escape the tax depending on ownership structure, it creates a tremendous incentive to shelter wealth in an already tight housing market by buying up supply, either directly or through a revocable trust, reducing homeownership affordability for middle-class Californians.

Furthermore, advocates for this tax seem to think wealthy individuals hoard gold coins in a vault somewhere, whereas high-net-worth individuals actually have most of their fortunes actively invested, often in their own companies. Confiscating that wealth means liquidating a portion of the investment, thereby reducing whatever flows from that investment.

In the case of business equity, like stocks, that typically means fewer jobs and slower wage growth for workers, along with less innovation that would’ve benefited customers. If an owner has to sell an equity stake to pay the tax bill, it can even depress share prices, harming other owners, like middle-class Californians holding stock in retirement plans.

Taxing wealth is much more economically harmful than taxing just the increase in wealth and combining the two is even worse. Prop 40 would do just that.

For example, capital gains are already taxed by both the federal government and California, while Prop 40 would tax the capital gains again along with whatever asset generated those gains.

What is being sold by proponents of Prop 40 as “the wealthy paying their fair share” is actually a massive economic distortion that will further incentivize tax shelters, encourage unnecessarily risky investments by chasing higher rates of return, and worsen California’s ability to provide public services in the long run.

If California is looking to kill the Golden Goose, they’ve found the silver bullet.

E.J. Antoni is a senior fellow at Unleash Prosperity and chief economist at the Heritage Foundation. Annie Heim is a research assistant in Heritage’s Institute for Economic Policy Studies.

Republished with permission of The Washington Times.

We publish a variety of perspectives. Nothing written here is to be construed as representing the views of the Daily Signal.

Consider the argument that net zero commitments by U.S. companies are indefensible.

First, it is possible that every U.S. corporation could meet its net zero commitments and yet have no impact on global warming so long as other countries keep emitting greenhouse gases.

Second, one of the primary beneficiaries of corporate net zero commitments is China, arguably the greatest geopolitical adversary of the United States.

Among other things, while net zero commitments undermine U.S. energy independence, prosperity, and national security, China is not similarly limited.

Third, another problematic beneficiary of U.S. corporate net zero commitments is the European Union.

The EU is home to corporations that have been so hamstrung by climate hysteria regulations as to make them utterly uncompetitive with U.S. firms but for the voluntary self-sabotage of U.S. corporations similarly hamstringing themselves.

Fourth, net zero commitments open companies up to unnecessary litigation for, among other things, greenwashing, and potentially embroil the company in conflict with the Trump administration. They also potentially put a boycott bullseye on the company if customers piece together the connection between corporate net zero commitments and higher energy prices for consumers.

To be sure, corporate leaders touting their net zero commitments will point to things like needing to meet regulatory demands imposed by jurisdictions as anti-growth as California, or that net zero commitments are demanded by important clients, employees, and other stakeholders.

However, I submit you’ll have little luck finding a corporation willing to affirm that all its net zero commitments are required by external regulation.

And I further submit you’ll have just as little luck finding a corporation that has actually crunched numbers to assess the opportunity costs associated with appeasing activist clients and employees, including the costs of implementing and tracking net zero commitments.

Case in point: Have you heard of a corporation publishing the ROI of its net zero investments?

And all the foregoing raises the specter of ideological bias and other conflicts of interest tainting the corporate decision-making process when it comes to corporate net zero commitments.

CEOs arguably want to virtue signal to their peers at the World Economic Forum, while corporate bureaucrats likely understand that net zero is part of a “Sustainability Full Employment Act” for middle managers.

And the employee feedback loop may be similarly tainted given that the pro-ESG views of leadership are well-known and amount to some version of asserting that all smart people are pro-ESG so no corporation would hire an ESG skeptic. (“ESG” stands for Environmental, Social, and Governance factors used in corporate decision-making, and can be used as a stand-in for net zero commitments here.)

But now add to all the foregoing a recent letter sent by “a coalition of 16 state attorneys general … raising concerns over climate-related financial activism in … the ‘Big 4’ accounting firms: Deloitte; Ernst & Young; KPMG; and PricewaterhouseCoopers.”

As set forth in the letter’s introduction, pushing for climate-related disclosures in financial reporting may be causing the Big 4 to: (1) violate professional duties; (2) engage in conflicted decision-making; (3) publish deceptive advertising; and, (4) violate state contractual provisions requiring compliance with applicable law.

For what it’s worth, I got the following when I asked Copilot to summarize the 38-page letter in a blurb short enough for a post on X: “The core problem with the Big 4’s climate-reporting push is that they have promoted expansive climate disclosure and assurance regimes from which they profit, while encouraging companies to report information that may go well beyond traditional U.S. investor-materiality standards, creating conflict-of-interest, governance, and disclosure-liability risks.”

Critically, the Big 4 are not public corporations and so many of the well-known shareholder protection remedies are unavailable. But the corporations relying on the advice of any of the Big 4 to justify expansive climate-related financial reporting are subject to that oversight.

When I further asked Copilot to evaluate how many red flags the letter raises for public company decision-makers relying on the challenged Big 4 guidance, I got back a list of 16 items, including: (1) “Reliance on the Big Four may no longer be presumptively ‘reasonable’ without inquiry”; (2) “Duty-of-care exposure from uninformed decision-making”; (3) “Duty-of-loyalty or bad-faith oversight allegations”; (4) “Securities-fraud risk from materially false or misleading disclosures”; (5) “Waste and corporate-purpose challenges.”

Certainly, auditor reporting recommendations do not automatically translate into net zero commitments, but there are sufficient connections to bring all this to the attention of corporate directors and executives. As has been said: “Gathering and reporting emissions data is typically the first meaningful step a company takes toward climate target setting and action.”

Republican lawmakers worry that the battleground map is widening as the midterms draw closer, putting their slim majority in jeopardy.

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WORLD — In the wake of the controversy swirling around musician Ed Sheeran, millions of people across the globe were tragically reported to have been forced to listen to Ed Sheeran.

Georgia Democrat Sen. Jon Ossoff has repeatedly campaigned with a mayor who allegedly exchanged explicit messages with an 18 year-old student and was impeached for spending thousands of taxpayer dollars on personal expenses.

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PEORIA, IL — Local man Chandler Cooke reportedly saw his prayer life totally reinvigorated as his teenage kids started driving.

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The Osight R packs a huge window, multiple reticles, night-vision compatibility and up to 83,000 hours of battery life into a $279.99 rifle optic.

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