California's Wealth Tax Proposal: Repeating Europe's Costly Economic Mistakes

The European Experience with Wealth Taxes

Over the past six decades, fourteen European countries have experimented with broad wealth taxes, with most ultimately repealing them after witnessing devastating economic consequences. The evidence from these nations presents a clear and alarming pattern: wealth taxes trigger capital flight, generate disappointing revenue, create massive administrative burdens, and ultimately damage economic growth. Today, only three European countries—Norway, Spain, and Switzerland—still maintain broad taxes on net assets, and even these apply at much lower thresholds than California’s billionaire-focused proposal.

European wealth taxes typically kicked in when net wealth reached approximately $200,000 in US dollars, making them far more broadly applied than California’s proposition targeting approximately 200 ultra-wealthy households. However, these taxes became riddled with exemptions, particularly for business ownership interests, which reduced their impact on highly mobile high-net-worth individuals while simultaneously diminishing potential revenue yields. The combination of capital flight and extensive exemptions led to abysmal revenue performance, with these national wealth taxes generating merely 0.2% of gross domestic product on average—a mere one-fiftieth of what the United States raises through federal income taxes.

California’s Aggressive Proposal

California’s proposed 5% one-time wealth tax represents an even more aggressive approach than European models, targeting a narrower group of taxpayers but applying to a significantly broader portion of their net worth. While proponents argue this focused approach might mitigate some negative impacts on small business formation, the effects on capital flight among the highest-net-worth households would likely be magnified. The mobility of billionaires makes them particularly sensitive to tax changes, and California’s proposal ignores the hard lessons learned across the Atlantic.

Professor Gabriel Zucman of the Paris School of Economics and UC Berkeley, one of the global architects of the wealth tax movement, acknowledges the failures of European wealth taxes and admits that outmigration and capital flight could be even higher under more aggressive regimes like California’s. His proposed solution—imposing heavy “exit taxes”—would likely violate the U.S. Constitution and represents a fundamentally un-American approach to taxation that restricts economic freedom and mobility.

The Four Fatal Flaws of Wealth Taxation

Capital Flight and Economic Exodus

The European experience demonstrates unequivocally that wealth taxes trigger massive capital flight. French, Swedish, and Irish officials cited outmigration—and the resulting outflow of jobs, investment, and entrepreneurial activity—as primary reasons for repealing their wealth taxes. In Switzerland, research shows that a mere 0.1 percentage point increase in a canton’s wealth tax reduces taxable wealth by 3.5%. Norway witnessed more ultra-wealthy households depart in 2022 following a wealth tax increase than in the previous 13 years combined. California, with its already concerning outmigration patterns, cannot afford to accelerate this trend.

Undermining Economic Vitality

Wealth taxes damage economic activity even among those who choose to remain. They distort entrepreneurial decision-making, reduce returns on investment, create economic inefficiencies, and undermine job creation and business expansion. A recent study suggests that losses from behavioral responses are almost 2.5 times those from departing wealth, meaning the hidden economic costs far exceed the visible revenue numbers. This represents a devastating blow to innovation and economic dynamism precisely when California needs to strengthen its competitive advantage.

Revenue Destruction Through Tax Interference

Wealth taxes actually deprive governments of revenue from other tax sources. Their collections are substantially offset by declines in revenue from income, consumption, property, and other taxes driven by wealth-tax-induced capital flight and reduced economic growth. Scandinavian researchers sympathetic to wealth taxation estimated that for every dollar generated by wealth taxes, 76 cents is lost under other taxes. In France, analysis of their repealed wealth tax estimated the government lost twice as much in reductions to other taxes as it generated from the wealth tax itself.

Extraordinary Compliance and Administrative Costs

The compliance and administrative burdens of wealth taxes prove extraordinarily high. Ireland’s repealed wealth tax saw taxpayers’ average compliance costs at 18.5% of wealth tax revenue, while government administrative costs reached 14% of revenue. Germany’s administrative costs under their wealth tax reached 12.3% before repeal in 1996. These massive overhead costs represent wasted resources that could otherwise fuel economic growth or fund public services.

The Constitutional and Ethical Implications

California’s wealth tax proposal raises serious constitutional concerns, particularly regarding interstate commerce and the potential violation of due process rights. The suggestion of implementing “exit taxes” to prevent wealth flight represents a fundamentally un-American approach that would trap citizens within state boundaries—a concept antithetical to our nation’s founding principles of liberty and mobility.

From an ethical standpoint, punishing success through wealth taxes undermines the very entrepreneurial spirit that has driven California’s economic miracle. The innovators, job creators, and visionaries who built Silicon Valley, Hollywood, and countless other industries deserve appreciation rather than persecution. Wealth represents deferred consumption, invested capital, and stored value that fuels future innovation—taxing it represents a short-sighted approach that damages long-term prosperity.

A Better Path Forward

Rather than repeating Europe’s failed experiments, California should focus on creating an environment that attracts and retains wealth creators. This means reducing regulatory burdens, streamlining government processes, investing in infrastructure and education, and maintaining a tax structure that rewards rather than punishes success. The state should learn from European failures rather than doubling down on policies that have proven disastrous across multiple nations and decades.

True prosperity comes from creating conditions where innovation flourishes, businesses grow, and individuals can build wealth through hard work and ingenuity. California should champion economic freedom rather than embrace the failed policies of European social democracies. Our state’s future depends on whether we choose the path of innovation and growth or the path of redistribution and decline. The evidence from Europe is clear—wealth taxes represent economic suicide, and California must avoid repeating these catastrophic mistakes that undermine both economic freedom and long-term prosperity.