Why California YIMBY Opposes the Billionaire Wealth Tax

California YIMBY is taking a formal position against the One-Time Wealth Tax (California Billionaire Tax Act or “CBTA”) headed for the November ballot. For an organization built around housing, that may look like a detour. It isn’t, and we want our members to understand exactly why.

TL;DR: While we believe taxes are good – they’re the price of living in a society, and we generally need more of them – poorly-designed taxes are bad, and can lead to both economic and political harm. The billionaire tax is poorly-designed:

• It will likely harm housing production by discouraging investment in California
• It will likely harm overall tax revenues by driving out the taxpayers who already pay the most taxes
• It earmarks most of the funds for a very narrow set of pre-defined uses
• It is a one-time windfall tax that will not solve longer-term revenue problems, and would exacerbate them by creating future shortfalls
• It is opposed by many of our friends and allies, including the unions representing the Carpenters and Building Trades, the California Housing Consortium, the California Council for Affordable Housing, and the Housing Action Coalition.

Our more fulsome explanation follows below, and we invite all of our supporters to both read it closely, and share your thoughts. We don’t take any of these types of public policy issues lightly, and did not come to an “oppose” position on this tax without serious consideration and inquiry. 

Our Reasoning, in Full

While California YIMBY is a housing organization, the goals behind this measure are ones we share. Its backers want to protect health care, public education, and food assistance for the families who depend on them, at a moment when federal support for all three is waning. Those are good and urgent goals. But as we’ve learned in housing policy, good intentions and good policy are not the same thing. 

Over the past few years, our work has pulled us steadily into tax and revenue policy. We’ve fought to fix harmful transfer taxes like Los Angeles’s Measure ULA, to bring down the impact fees that make new homes more expensive, and to make revenue-sharing between jurisdictions fairer. We also fought to lessen the harmful impacts of Prop 13 by supporting the Schools and Communities First initiative in 2020. Along the way we’ve learned that a healthy state fiscal system is not a side issue for the housing movement — it is the foundation beneath everything we want: homes, transit, schools, parks, and safe streets. When a ballot measure threatens that foundation, it is squarely the business of YIMBYs.

We judge tax policy against a straightforward standard. A good tax should be growth-enhancing, non-distortive, broad-based, predictable, progressive, and sufficient to meet the state’s needs. Almost no real tax satisfies all six — a land value tax comes closest — so we don’t demand perfection. Nor do we insist that every tax be broad-based: narrowly targeted taxes are exactly the right tool when they price in real social costs, like pollution, or substances that are harmful when abused, like alcohol and tobacco. But clearing a single one of those bars doesn’t make a tax good. This wealth tax is genuinely progressive. It also fails nearly every other test.

A core principle of tax policy is that taxes should be designed to minimize distortion effects. For this reason, an accepted and long cited principle of tax policy is that most redistributive taxes belong at the central government level. Taxes levied against mobile taxpayers at the subnational or state level should be carefully calibrated to ensure that such taxes don’t induce too many tax-payers to move away from, or avoid moving to altogether, the taxing jurisdiction. As we’ll explain below, while relatively few high-income earners move away from jurisdictions with progressive income taxes, wealth taxes are another matter.

The CBTA is explicitly designed to replace federal funding cuts, to substitute California state revenue for withdrawn federal transfers. This gets the policy backwards: it simultaneously relieves federal fiscal pressure, reduces the political cost of federal abdication of fiscal responsibility, and substitutes a distortionary state capital tax for one that truly needs to be done at the federal level. California is not just doing major redistribution at the wrong level, it is giving the federal government a get out of jail free card for not doing its job. 

And to be clear about where we stand: we are not anti-tax, and we are not opposed to asking the wealthy to pay more. We were enthusiastic supporters of Schools and Communities First, the 2020 effort to reform Proposition 13 with a split roll for commercial property. We believe California needs adequate, progressive revenue. We simply believe it has to be designed to actually work.

A Lopsided Split

Here is what the measure does. It imposes a one-time, 5% tax on the net worth of Californians worth more than a billion dollars — roughly two hundred people — and directs 90% of the proceeds to health care, with the remaining 10% split between education and food assistance.

Start with that lopsided split, because it reveals the measure’s real character. This is less a general-revenue measure than a dedicated funding stream for a single sector. It is part of why the California Teachers Association, which represents more than 300,000 educators and would ordinarily welcome new money for schools, came out against it. 

Then there’s the mismatch at its core. Medi-Cal, schools, and food assistance are permanent obligations. A one-time tax is, by definition, a one-time windfall. Funding ongoing programs with a single sugar high is a recipe for a future cliff, and the size of that windfall is anyone’s guess, resting as it does on a handful of people and the swings of their portfolios.

But the deeper problem is the harm to housing, because the CBTA is anti-housing in its structural and psychic effects.

The Measure Penalizes Housing Investment in California

California needs a massive increase in housing production, requiring concomitant growth in both debt and equity investment. The CBTA penalizes those currently building and signals everyone else to stay away.

The measure’s largest exemption is for property held as an individual or what the CBTA calls “directly held,” while property owned through business entities remains taxable. This gets housing exactly backwards. No meaningful housing production happens through directly held property, it happens through LLCs, LPs, and joint ventures. Construction lenders require project-level entities to fund development projects. LIHTC syndication requires entity-level ownership. The CBTA creates a tax benefit for people to invest in real estate as individuals, but not through business entities. As entities are the ones that invest and build housing, the CBTA, gives an advantage to the only ownership structure that doesn’t contribute to housing production, while penalizing every structure that does. 

The authors justify the carve-out in a single footnote: billionaires already pay property taxes on directly held real estate. But Prop 13 ensures those taxes bear no relationship to actual property values, particularly for long-term landowners whose land-hoarding behavior already impedes housing production. The CBTA doubles down on this distortion, explicitly rewarding it with a wealth tax exemption.

The Capital Effects are Real and Severe

Over the past decade construction financing has shifted dramatically from bank lending to debt funds — non-bank lenders whose capital frequently flows from family offices funded by the very people this tax targets. California already has a disproportionate share of the nation’s billionaires, which means a disproportionate share of the investors powering non-bank lending not just here but nationwide. The CBTA directly penalizes that capital source.

Proponents dismiss relocation risk of taxpayers as a straw man. They’re asking the wrong question and largely citing less relevant scholarship about taxpayer mobility due to income taxes, not wealth taxes. Capital allocation mobility is high if not unlimited. Housing projects compete nationally for financing. Every time a California project sits beside a project in a state not experimenting with new financial penalties on housing investment, our project loses. 

Passing a first-of-its-kind wealth tax is one more signal to the national investment community that California is the wrong place to put money to work, and will create a landscape of jurisdictional arbitrage that disfavors California. Lending and investment decisions are made by individuals influenced by optics and even “vibes.”  When a project is up for investment a group of people meet in an investment committee or pipeline meeting and look at multiple projects, all asking for their investment. Instead of focusing on the merits of specific projects, the conversation will once again turn to “Did you see what California did?” A tax like this will create more gossip, more distraction, stigma, more friction, and one more reason for an investment committee to pass on a California project. In an intensely competitive environment for capital, when the investors or lenders have a lot of options, it doesn’t take much to lose an investment.  

This measure just puts another huge hurdle in the path of building, as capital allocators are as susceptible to vibes-based “thinking” as anyone else.

This bill imposes a California-specific source of capital penalty on entity-held real estate assets that out-of-state developers organizing comparable projects do not bear – giving investment committees, and their sources of capital a great reason to pass on a California project in favor of one in another state. If the best investors with the most options pass on our California projects out of bias rather than metrics, our projects need to source less competitive sources of capital which will inevitably be more costly. Additionally it may have the effect of freezing capital flows and allocations from those subject to this tax.  

We cannot build our way out of the housing crisis while simultaneously making it harder and more expensive to finance construction. The CBTA does exactly that.

Our Taxes are Already Progressive

There’s another problem, and the one that should sound familiar. We’ve spent the last year documenting how poorly designed transfer taxes backfire: by taxing sales too steeply, cities like Los Angeles didn’t just slow housing, they shrank the property-tax base, in some cases collecting less overall than before. This wealth tax does the same thing to a different, and far more important, base. California’s personal income tax is among the most progressive in the country, and it is the state’s largest revenue source, funding roughly two-thirds of the general fund,  with the top 2% of earners paying about half of all of it. Drive those people out and you trade a one-time levy for the permanent erosion of the most progressive revenue stream the state has.

The measure is retroactive, and its mere announcement has already pushed billionaires, and a reported several hundred billion dollars in wealth, out of the state. Because of how the timing works, California could lose revenue even if voters reject the measure outright. And just as cities keep 100% of a transfer tax while denying counties and school districts their share, this measure earmarks a windfall for one sector while the lost income-tax revenue is subtracted from the general fund that pays for all the others — including housing and infrastructure, and including the very services the measure claims to defend.

The best scholarship supports the claim that wealth taxes induce significant mobility (of individuals or taxable assets), whereas progressive income taxes induce low mobility. 

UC Berkeley’s Enrico Moretti found that while state-based estate taxes would usually yield positive revenues for states, in California, such taxes would be disastrous, in part because California has such high progressive income taxes.

Add a base of roughly two hundred people, and a design that taxes accumulated capital and unrealized gains after the fact,  telling every founder and investor that California will change the rules retroactively,  and you have a tax that is narrow, volatile, growth-suppressing, and self-defeating. Progressive, yes. Good, no.

The Tax is Dividing Progressive Groups Across California

We are far from alone in thinking along these lines. The California Housing Consortium, the United Brotherhood of Carpenters, the State Building and Construction Trades Council of California, the California Council for Affordable Housing, the California Teachers Association, and many others have come out against it. Labor itself is divided, with major unions opposed. These are not organizations that reflexively oppose taxing the wealthy. When groups that would ordinarily cheer a measure like this instead line up against it, that tells you something about the specific measure, not about progressive taxation.

California civilization is worth defending and worth paying for. But the tax instrument matters, and we’re not done advocating for policies like split-roll, which could raise more than $10 billion each year. California YIMBY also intends to help realign fiscal policy and revenue sharing among the thicket of overlapping taxing authorities — cities, counties, school districts, the state, fire protection districts, parks districts, mosquito abatement districts, et al — to ensure that communities that welcome new housing are rewarded with more revenue, not less.

A growing, fiscally healthy California is what pays for housing, for infrastructure, and for a safety net worthy of the name. This measure would weaken that foundation, not strengthen it. We oppose CBTA because of our commitment to a fair and adequate tax system that encourages growth.

by Brian Hanlon, CEO, and Noah Ornstein, Director of Industry Partnerships

What Others are Saying:

“At a time when Californians are demanding economic growth, housing, and good-paying jobs, this initiative moves us in the wrong direction. Rather than attracting investment and creating opportunity, it will drive employers, jobs, and capital out of California. Carpenters believe in a fair tax system that supports working people and economic prosperity. This measure does neither.”

– Pete Rodriguez, Vice-President, United Brotherhood of Carpenters 

“What we believe would happen is these individuals would leave California and take these investments to other states – losing the jobs for our members, losing tax revenue that goes into the general fund. It’s not because we feel that anyone shouldn’t have to pay their fair share, but doing a retroactive tax, we believe, would drive people out of the state and drive investment out of the state.”

– Chris Hannan, President, State Building and Construction Trades Council of California

“California policymakers have struggled for decades with the state’s volatile revenue system, which has made crafting an annual budget a constant challenge and prevented state leaders from providing stable, sustainable investments in affordable housing and other top state priorities. The wealth tax only compounds the volatility, adding uncertainty to both the economy and state budget, while narrowly dictating how these resources can be spent. Affordable housing providers believe there are better, more effective ways to fund the wide range of public services Californians depend on, and that is where we are focusing our efforts this year.”

– Ray Pearl, Executive Director, California Housing Consortium

“Affordable housing doesn’t get built without investment. A wealth tax may sound appealing in theory, but in practice it risks pushing capital, jobs, and housing investment out of California. At a time when the state faces a severe housing shortage, policymakers should focus on attracting the resources needed to build affordable homes—not discouraging them. If our goal is to create and preserve affordable homes for working families, seniors, veterans, and people with disabilities, we should be encouraging investment in housing and community development—not creating new barriers that make it harder to finance the affordable housing Californians desperately need.”

– Jenna Abbott, Executive Director, California Council for Affordable Housing