You know that California is contemplating a tax on residents’ wealth. The tax has already been reported to have driven some of the state’s billionaires to find homes in other states. At the Cato Institute, Adam N. Michel and Chris Edwards discuss the damage such wealth taxes can do, and their growing popularity around the world. They write:
Proposals to raise taxes on capital, and wealth in particular, have gained attention in US and global tax debates. In November 2026, California voters will decide whether to enact a one-time 5 percent tax on the worldwide net wealth of state residents with assets above $1 billion.2 At the federal level, Sen. Elizabeth Warren (D‑MA) has reintroduced her Ultra-Millionaire Tax Act and Sen. Bernie Sanders (D‑VT) has reintroduced his Make Billionaires Pay Their Fair Share Act.3 The Biden administration had pushed a “billionaire” minimum income tax proposal that would have imposed an annual 25 percent minimum tax on the income—including unrealized capital gains—of households worth more than $100 million.4 Other proposals from both Republicans and Democrats include higher taxes on the wage and capital income of well-off Americans.5
A parallel debate is unfolding internationally. After three decades of repealing wealth and estate taxes, and cutting other taxes on capital, some countries have started reversing these reforms. Norway raised its wealth tax rate in 2022, which led to a high-profile exodus of wealthy taxpayers to Switzerland. Spain expanded its wealth tax in 2022 through an additional Solidarity Tax on Large Fortunes. France abolished its broad wealth tax in 2018 but is debating whether to reimpose it. Under Brazil’s leadership, the G20 group of countries commissioned a proposal for a global minimum wealth tax on high-wealth individuals.6
Why do some policymakers want to raise taxes on wealth and capital? Warren says that she wants to address “runaway wealth concentration.”7 Sanders demands that “the wealthy and large corporations start paying their fair share of taxes.”8 The union-led California ballot initiative targets “excessive accumulations of wealth.”9 And global initiatives are justified with lofty promises of “social cohesion and trust in governments to work for the common good.”10
The top 10 percent of earners make 46 percent of US income but pay almost two-thirds of all federal taxes.
The US federal tax system is already highly progressive, meaning that it lands heavily on top earners. When considering all federal taxes—income, payroll, estate, and excise—US Treasury data show that the average effective tax rate for the top 0.1 percent of households is 33.4 percent, the rate for the middle 60 percent is 12.3 percent, and the rate for the bottom 20 percent is near zero. The top 10 percent earn 46 percent of US income but pay almost two-thirds of all federal taxes.11 A recent report by the Fraser Institute found that the United States has the most progressive tax system among major industrialized countries.12 Similar reports from the Organisation for Economic Co-operation and Development (OECD) and the left-leaning World Inequality Lab find that US taxes are more progressive than those in any other country studied.13
There is no agreement that progressive tax systems are fairer than systems that burden households in equal proportion to their incomes. But even if there were, the US tax system is already strongly tilted against high earners.14 A better way to increase tax fairness would be to end narrow tax breaks or loopholes for the wealthy, such as the income tax exemption for municipal bond interest and the deduction for state and local taxes.15
The idea that wealth can get “too concentrated” is something a child would imagine. It’s a fairytale. Wealth is grown; it’s created by productivity. The billionaires and “ultra-millionaires” being targeted with new taxes didn’t go around and steal their wealth from everyone else and hoard it under a mountain like the dragon Smaug in Tolkien’s The Hobbit. There are no dragons. The billionaires provided value to their customers who exchanged dollars representing their own previous or future productivity to get a good or service they wanted at a price they agreed to.
Once billionaires have wealth, it’s never just sitting in a pile; it’s invested or lent, allowing others’ businesses (or their own) to generate further value for society. There’s no magic pile of gold politicians can take from. Wealth is the fuel of America’s productivity. Take it away and spend it on wealth-destroying government programs, and it will sap the nation’s economic growth.
Action Line: When you want to talk about your wealth and putting it to good use, email me at ejsmith@yoursurvivalguy.com. And click here to subscribe to my free monthly Survive & Thrive letter.
Originally posted on Your Survival Guy.
