The Politics and Promise of a Billionaire Tax

0:00Darien Shanske:Certainly, the great wealth that's accumulated here, as well as the great inequality, is a precondition, just to a certain extent, for a tax like this in terms of it both being supported and it being productive. I also think that California is a state where there is at least some commitment to a level of a social safety net functioning that resonates with people.

0:32Professor Richard Thompson Ford:This is Stanford Legal, where we look at the cases, questions, conflicts, and legal stories that affect us all every day. I'm Rich Ford. Please subscribe or follow this feed on your favorite podcast app, and that way you'll have access to all of our new episodes as soon as they're available. In 1989, the richest 0.1 % of Americans held about 8.7 % of the wealth in the country. But in 2004, that same top 0.1 % held 13.9 % of the wealth. Are billionaires paying their fair share to allow our society to continue to thrive? Some people in California think they aren't, and they've proposed a way to remedy that.

1:14Professor Richard Thompson Ford:The Proposed Billionaire Tax Act is slated for the November 3rd, 2026 general election. Assuming proponents gather enough signatures by the June 2026 deadline, to get the measure on the ballot. If qualified in the past, it would propose a one-time 5 % tax on the net worth of individuals in California, exceeding$1 billion. Here to discuss this proposal is Darian Shaksky. Darian is a Stanford Law alum and a professor at UC Davis School of Law, where he writes and teaches about taxation, public finance, local government law, and political theory. Before starting teaching, he worked as a financial consultant to California local governments and practiced public finance law at Sydney and Austin in San Francisco.

2:02Professor Richard Thompson Ford:Darian's been deeply engaged in the debate over California's proposed billionaire tax, and in a series of papers, he's argued that much of the criticism of the proposed tax is directed at a misdescription of the measure rather than as the proposal is actually written. He emphasizes that the proposal is a one-time 5 % tax payable over five years, not a permanent annual wealth tax. And he's pushed back on some claims that it would force fire sales of companies or prompt a mass exodus of billionaires from the state. At the same time, his work opens up bigger conversations about state taxing power, extreme wealth concentration, and what fiscal tools states should have when they face major public needs.

2:48Professor Richard Thompson Ford:Darian, thanks so much for joining us.

2:50Darien Shanske:It's a great honor and pleasure to be here. Thanks so much for having me.

2:53Professor Richard Thompson Ford:So why don't we just start with some background. What exactly is the billionaire tax? How did you and the others involved in developing it develop it? And why do you think we need it?

3:04Darien Shanske:Great question. So the other developers are Brian Galley at Berkeley, Emmanuel Saez at Berkeley, and David Gammage, who's at Missouri. And so we started working on versions of this tax during the pandemic. And the idea was that there was great emergency, in that case, the pandemic, not being handled well by the federal government. And certainly before we understood that there'd be this strange K-shaped recovery such that, in fact, state revenues would not be severely hit, it looked like there'd be a major hit to state and local revenues at the worst possible time. And the question was, what should we do?

3:46Darien Shanske:And so that emergency was paired with the fact, as your introduction pointed out, this explosion of income inequality. So a relatively small tax could yield quite a large sum of money very quickly on an emergency basis. And so our first version of this tax was drafted in 2020. We then worked on updated versions of it. We wrote very long and probably tedious law review articles developing some of the ideas as to the mechanics of these kinds of taxes. And we worked on including a proposal, a legislative proposal for a well tax here in California that really went nowhere. The big thing that changed was the so-called Big Beautiful Bill Act, APA, which was passed in July of 2025, that combines large and spectacularly regressive and poorly designed tax cuts, which are generally unpaid for, except for cutting health care to the very poor and the working poor through Medicaid.

4:52Darien Shanske:So this combination of an urgent need created by poor federal policy with even further explosion of wealth inequality such that the wealth of billionaires had doubled again since we had first articulated our initial proposal meant that a small tax, so 1 % and change a year, temporary for five years, so about what people pay on their real property, that tax would yield enough money to fill the gigantic hole created by this poor federal policy.

5:28Professor Richard Thompson Ford:So in one sense, it's an emergency measure designed to kind of counteract the regressive tax policy of the Trump administration. So why a wealth tax? Because some people may think, well, why not just raise the income tax or raise the property tax? Or there are a lot of ways to raise revenue. And a wealth tax seems somewhat unusual. Great question.

5:50Darien Shanske:So I'll answer firstly by making a couple of analogies. I apologize. It's, I guess, a professional hazard. So imagine there's a spectacularly successful IPO. If there's a spectacularly successful IPO, imagine there's a lawyer involved. And that lawyer did good work. That lawyer earns$10 million, a California lawyer. Most of that$10 million will be taxed at the highest personal income tax rate in California. Let's simplify to 13%. If there's a banker involved, same thing. If there's an engineer involved, maybe a little bit more complicated, probably also pay 13%. But the founder, who is now a billionaire, will pay nothing in income tax.

6:33Darien Shanske:And the reason for that is that they just have shares that are suddenly worth a billion dollars or$10 billion. And unless they sell them, there's no income to be taxed because the income tax is a realization-based system. So it's based on actually selling stuff. But you might say, well, to be a billionaire and enjoy yourself, you have to sell stuff. You do not. You can borrow. And in fact, borrowing, again, under the income tax doesn't have to be this way, but under the income tax is currently designed, borrowing is not a self-realization event. So you can borrow all you want and never pay anything.

7:07Darien Shanske:And so it doesn't make – so in terms of basic fairness and efficiency for similarly situated taxpayers not to pay the same amount and for the most affluent to pay the least. something similar to a property taxes. Most Californians pay about 1 % and change if they have any wealth on their wealth in the form of real property. And the question is why, just because it's real property versus intangible property, the people who have the most property shouldn't pay about the same 1%. And in fact, the general property tax, which was in place in most of the country in different ways, obviously between 1830 and the 1930s, did include intangible property as part of the property tax base.

7:52Darien Shanske:And so the idea that this is wholly new or different is not true, as well as, again, the basic fairness and efficiency intuition of why go to the middle class or even merely affluent who are paying their 1 % plus on their real property when the most affluent who have a huge amount of intangible property are paying little or nothing.

8:16Professor Richard Thompson Ford:So in a way, you could see this then as closing a loophole in effect. Yes. Yes. OK. Interesting. So some people would say, well, California already taxes people at a very high rate and it's got a huge economy. Why do we need more money? Is this not a case where the state has just mismanaged its budget and now has to go back to the well in a different form?

8:42Darien Shanske:It's worth taking a step back here, I think, and just considering the fact that this country doesn't spend very much on its social safety net. And as up until, say, 2010, there's a great quote from Ronald Dworkin pointing out that a country this rich to have this many people without health insurance is a disgrace. And I agree with that. And we've made progress on that disgrace since the passage of Obamacare, the Affordable Care Act, both in terms of premium credits and the Medicaid expansion. And California has been very aggressive and very successful at providing more basic coverage to more people.

9:26Darien Shanske:And so this is a response to the federal government not spending money on this basic social safety net programs that it had been spending. It's not an example of California having made some terrible mistake or terrible mismanagement. Furthermore, Medicaid is a relatively efficient program in terms of providing basic social insurance to the poor. Is there fraud? Sure. But keep in mind that what the one big, beautiful bill act, I keep having a hard time saying it, does is adds a work requirement. It doesn't add any fraud protection measures. And the work requirements are designed to throw people off the rolls.

10:11Darien Shanske:That's why the CBO thought it would save a trillion dollars. So it's nothing about saving money. It's nothing about making government more efficient. It's just a mean-spirited way of spending less on the people who need it most. And in a way, the healthcare system is a system. So if rural emergency rooms have to close in the Central Valley because of this measure, I mean, what will the emergency room look like at Stanford? And so the idea that we're all in this together, I would have thought was pretty clear, but apparently is not as clear as it might be.

10:47Professor Richard Thompson Ford:So in one instance, then, this is a reaction to a crisis that's been generated by the decision to cut medical care and forcing that down to the state level. And states like California are trying to take up the slack, but it's a big lift for a state this size.

11:05Darien Shanske:That's right. It's a big lift even for a state this size. And if we did increase, say, the income tax, then going back to our initial IPO example, that means the lawyer and the bankers, the people already paying, maybe not enough. We can have an argument about whether it's the right rate, but a reasonable rate. They'd be paying more, and the person making the most would still be paying virtually nothing. And that doesn't sound like the right answer, that at the very least, we should go to the people most able to pay first. And in correcting that loophole, we didn't have enough money to provide basic social safety net services, then we should have a further discussion.

11:47Darien Shanske:But we're nowhere near having that discussion because we can't even have the most affluent pay. And furthermore, because of the explosion of wealth inequality, it's just a coincidence that this 1 % five-year tax is enough to fill this hole. But it's a coincidence generated by this explosion in wealth inequality.

12:08Professor Richard Thompson Ford:So let's talk a little bit about some of the potential incentives and consequences of the billionaire tax, because some people argue that this will lead all the billionaires to exit the state or will in some way squash innovation. So, for instance, Ron Conway, the venture capitalist, said that this is the greatest tragedy the state has ever felt. So earthquakes, floods, wildfires are in second place. The billionaire tax is the worst. And Rob Lapsley of the California Business Table called it one of the worst tax policies ever conceived. Their position seems to be that it's going to be bad for the economy in some way by forcing the most productive people out of the state.

12:50Professor Richard Thompson Ford:What do you say to those arguments? There's a lot to be considered there.

12:55Darien Shanske:I mean, certainly one thing is someday somebody is going to study the hyperbolic rhetoric around this tax. that seems to be completely untethered to reality and just wonder as to what exactly is going on. And I did this speech as a lowly tax professor. It's beyond my pay grade to know or understand. I think there's going to be a separate question that I hope we addressed as to the legal effect of some of the billionaire churn that has arguably already occurred or might occur. And we can talk about that. And short answer, not likely to be effective. Then there's the more fundamental question as to the incentives here.

13:39Darien Shanske:Now, the actual tax that we're talking about is a 1 % and change temporary tax levied for five years. Common sense and empirical research suggests that the California economy will not collapse over such a tax. A really nice thing about being a billionaire, apparently, I obviously don't know from experience, is you get to live where you want. And the idea, and research backs this up, that people are certainly going to uproot their lives when they can live anywhere they want because of this is improbable. That said, their flip side is that billionaires can afford a lot of tax lawyers. And so if it's very, very easy to avoid a tax, then they will.

14:24Darien Shanske:Good return on investment. And so a big part of what we've done is try to create a tax that is a low rate, temporary, so consistent with the literature and common sense people should not respond to in a large way, while at the same time closing loopholes so it's not so easy just not to pay it and just pay a lawyer to avoid it. And that's the combination that we're going for. And I think it's so clear that people are – billionaires are not going to respond to such a low temporary tax, which is why, as you said at the beginning, there's this great tidal wave of misinformation, that it's a permanent tax, that it's 5%.

15:05Darien Shanske:Because now if it's a permanent 5 % tax, it still doesn't sound all that likely to destroy the California economy. But at least you can tell a story that a lot of billionaires might leave up for because of a permanent 5 % tax. But even that, but that's not true, right? That's simply not what the proposal is. Furthermore, very important to recognize a few things. One is that consider the unique ecosystem California offers, and you're offered the chance to come here and have an AI startup. It might not work out, but part of what's so attractive about California is that you can then have another AI startup, and nobody cares that you fail the first time.

15:47Darien Shanske:And you'll have no problem finding new engineers to work with you on your project. And if you're lucky, you're going to become a billionaire. And if somebody said, yeah, and it's possible that at some point in the future, there might be another 1 % tax on your$10 billion, who's – well, therefore, I'm not coming? It doesn't make any sense, right? And so thinking about the future effects of the economy is, you know, and that it'll be severe is also not a sensible position, as well as the fact that the handful of billionaires are not. We just talked about how they don't really pay the income tax.

16:26Darien Shanske:What they pay in income tax is very, very small. It is true our income tax is progressive and is dependent on relatively affluent taxpayer. But there are hundreds of thousands of those. Those are the lawyers and doctors who are paying the 13%, not the founders who are billionaires who are paying very, very little. And the doctors, lawyers, and engineers, there's no clear argument as to why if a handful of billionaires decide to move to Miami, that they're going to follow them there. And so it's an argument loaded with non-sequiturs, which again is why there's been such a desire to characterize the tax as something other than it is because the tax on its face wouldn't have these kinds of effects.

17:14Professor Richard Thompson Ford:I've heard some – here's one other to the billionaire's advocate, not that they don't have enough. But some people have said that the tax will require them to dump stock or entirely liquidate their businesses because it's taxing illiquid assets. And so they don't have the money apparently to pay the tax without having to sell something. Any responses to that? So many.

17:37Darien Shanske:So, again, the first point is you can defer the 5 % tax for five years with a small interest charge, so 1 % a year. So we've specifically designed this as a low tax. The idea that a billionaire doesn't have liquidity to that extent, again, is for the most part highly implausible. Number two, most billionaires have publicly valued assets. That's why they're billionaires. They had IPOs. Their stock is publicly valued. either selling some of those shares or getting a loan against those shares because they're publicly valued. It won't be difficult and won't require them selling. As for the handful of people who might, billionaires who might truly be liquidity constrained, our proposal includes a deferral option, which basically allows them to defer taxation until there's a liquidity event.

18:30Darien Shanske:And that's, you know, that was a big thing. We've worked on through multiple drafts, and one of our long law review articles is all about that. But it basically says you owe us, again, say 5%. You don't have to pay it now. But when there's a liquidity event, then give us our 5%. And so we've spent a lot of time thinking about this. Our goal was not to be onerous or require fire sales. That's why the rate is what it is. That's why there's a referral option. And so we think that that's just scaremongering.

19:06Professor Richard Thompson Ford:Let's talk a little bit about some of the larger politics surrounding the billionaire tax. Obviously, it's gotten an enormous amount of press and an enormous amount of attention. Do you know how close you are to gathering the requisite number of signatures? Is this likely to be on the ballot? The truth is, I don't.

19:28Darien Shanske:They keep me in the basement drafting. They don't know how they're doing with signature gathering. So I don't know the answer, although I will – this does touch on the fact that there's a question that it might get on the ballot. It goes to this really – another common theme about whether this is a temporary or permanent tax. People say in this kind of world-weary, cynical way, oh, there's no such thing as a temporary tax. I mean there is. There is such a thing in California. Californians didn't re-up the sales tax increase that was part in 2012. It was a four-year tax increase, and they didn't re-up that.

20:07Darien Shanske:Californians don't approve all taxes, right? They rejected a millionaire's tax a few years ago. They rejected split roll in 2020, which was a big surprise. That was with everybody. By everybody, I mean all the unions, Governor Newsom, Mark Zuckerberg supported it, still lost. So the idea that these things are all permanent is, I think, dubious. And when it comes to the signature gathering, the billionaires have put five what we're calling revengements on the ballot or gotten them through the process. These are ballot measures like the Budget Stability Act that sounds like totally reasonable, but you have some poison pill inside that would sort of affect our measure of how it would and what the courts would say is another question.

20:52Darien Shanske:But definitely that's the goal. And they're paid signature gatherers a lot to get signatures, more than the unions are. And so there's a real question whether the unions will be able to get the signatures it needs because of the power of the billionaires to pay more per signature. And that just goes to this question of whether or not this is going to be a, you know, there's such a thing as a temporary tax. If this measure gets on the ballot, if it passes, despite clearly going to be outspent many times over, that, you know, unions or other groups will look at this adventure and think, this is great.

21:33Darien Shanske:This is something we want to do again. I think that's a questionable assumption.

21:37Professor Richard Thompson Ford:So, Darian, I suspect that if this tax passes, there'll be some legal challenges and some people have claimed that it's unconstitutional or it's a taking of property. What do you think the legal challenges will look like and how vulnerable would this tax be to legal challenge?

21:54Darien Shanske:Great question. There's no doubt that there'll be a lot of legal challenges ranging from this somewhat plausible to the completely implausible. And we try to channel them in the bill by having an expedited review of facial challenges that will go to a superior court and then the California Supreme Court as quickly as possible. Because we understand that there will be these meritless challenges and we want them to be resolved as quickly as possible. There will obviously also be some as applied challenges, which people have to pay taxes first and then go through the regular process. and those will take longer.