California Targets Its Ultra-Wealthy

California may soon impose a one-time 5% tax on residents with net worths of $1 billion or more, a move designed to raise $100 billion over five years to offset anticipated federal healthcare funding cuts. The initiative would apply to roughly 200 billionaires holding an estimated $2 trillion collectively.

Although labelled a “one-time” measure, advisors note that ultra-wealthy residents are already planning departures to safeguard assets. The proposed framework includes residency and anti-avoidance mechanisms, but the timeline for voter approval in November 2026 provides a significant window for strategic planning.

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Wealth Migration in Motion

David Lesperance, Managing Director of Lesperance & Associates, observes that California’s billionaire residents are acting pre-emptively. “With this whiff of ‘tax the rich’ smoke, the targets are bolting from California now,” he notes. High-profile departures in recent years include Elon Musk, Larry Ellison, and other tech executives relocating to Texas or other low-tax states.

Census Bureau data confirms California experienced the largest net resident outflow in the U.S. between 2023 and 2024, a trend likely to accelerate if the measure passes.

Structure and Enforcement

The initiative targets nearly all asset types:

• Included: Public securities, private company equity, trusts, art, collectibles, IP, and business interests.
• Excluded: Directly held real estate and revocable trust property.

Valuations would combine book value with 7.5x average annual profits over three years, with taxpayers able to contest appraisals. Penalties for substantial understatements can reach 20–40% of the owed amount.

Optional Deferral Accounts allow liquidity-constrained taxpayers to manage payments through illiquid holdings, with interest applied to balances over time.

Drivers Behind the Proposal

The measure responds to projected federal healthcare reductions under the One Big Beautiful Bill Act, aiming to protect millions reliant on Medicaid. Ninety percent of revenues would fund healthcare programs, with 10% allocated to education. Annual distributions are capped at $25 billion via a dedicated constitutional reserve account.

Despite potential revenue gains, critics highlight risks: the top 1% already contribute 39% of state tax revenue, and further wealth migration could reduce existing revenue streams.

Broader Implications

Beyond California, ultra-wealthy Americans are evaluating international alternatives. Citizenship and residency programs in the Caribbean, Portugal, and Gulf states with territorial tax systems are gaining interest as tax-efficient options.

Progressive momentum is building nationally. Movements in New York City and among Democratic Socialist platforms reflect growing appetite for taxing concentrated wealth, though academic studies from Sweden and Denmark indicate that wealth taxes can drive a 2% outward migration per percentage point of tax increase.

Legal and Political Landscape

Governor Gavin Newsom opposes the measure, calling it “bad policy” and forming a counter-committee funded by business leaders. Legal experts anticipate constitutional challenges, particularly around retroactivity and due process.

The initiative requires 874,641 valid signatures by late April 2026 to appear on the November ballot, with voter approval needing a simple majority.

California’s billionaire tax proposal underscores a broader tension: generating revenue while preserving the state’s global economic competitiveness. For high-net-worth individuals, exploring international residency and citizenship strategies has never been more relevant.

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