You saw this week that the lawyers have already come for NYC Mayor Zohran Mamdani’s pied-à-terre tax, with a judge blocking its implementation. Now, at the Tax Foundation, Jared Walczak describes a number of constitutional problems that put California’s proposed wealth tax on shaky ground. He outlines his key findings, writing:
- The California Billionaire Tax Act (Proposition 40), which imposes a one-time 5 percent tax on billionaires’ net worth, is vulnerable to numerous constitutional challenges, any of which could invalidate the tax in whole or in part.
- Drafters’ characterization of the levy as an excise tax rather than a tax on property is irrelevant; if amendments superseding the state constitution’s limits on intangible property taxation fail, then the new tax fails as well.
- The retroactive residency date is fatally flawed under Supreme Court precedent barring retroactive imposition of a “wholly new tax.”
- The tax’s 100 percent apportionment system violates nexus, fair apportionment, and internal consistency requirements.
- The measure’s sweeping anti-avoidance rules include assets the taxpayer does not own, raising due process issues and, in certain cases, guaranteeing double taxation.
- By seeking to lock taxpayers into full liability whether they stay or leave, the tax burdens the right to travel, which could force the state to defend these provisions under strict scrutiny.
- The tax base impermissibly includes US Treasuries and other federal obligations.
- Uncapped penalties on appraisers who value hard-to-value assets raise Excessive Fines Clause concerns because they are grossly disproportionate to any good-faith errors.
- Drafters have asked courts to reform the statute to cure any defects, but the measure’s constitutional flaws far exceed what can be accomplished through judicial reformation and point toward striking the tax down in its entirety.
Walzcak concludes:
If the CBTA fails under any of the constitutional challenges it faces, the state will seek to argue that the provisions are severable or subject to judicial reformation. But some of these provisions go to the core of the tax’s architecture, which argues for striking the tax down in its entirety. Even if the tax manages to survive facial challenges to its constitutionality, moreover, it could face as-applied challenges from each taxpayer in turn.
The pending ballot measure is driving billionaires out of California, and its passage would also drive away future founders fearful that California will later adopt a permanent wealth tax that would avoid some of these legal pitfalls. And it could inflict all this damage—departures, the chilling effect on future founders, and years of litigation—without ever generating a single dollar of tax liability, if the tax is felled by its numerous constitutional flaws.
Action Line: Despite what blue state politicians may believe, there are constitutional limits on the power of taxation. If you are looking for a better America, begin your search with Your Survival Guy’s 2026 Super States rankings. And click here to subscribe to my free monthly Survive & Thrive letter.
