A recent article in Forbes magazine breaks it down. Here’s a summary:
According to Economist Dean Baker (Center for Economic and Policy Research), the California billionaire tax can look punishing on paper, but it actually partially mitigates the tax breaks that our tax system grants the very wealthy. Even though it can seem like California has one of the highest income tax rates in the country, these rates only apply to ordinary income such as wages and salaries - and billionaires rarely live on wages and salaries. Most of their income comes from capital gains and business equity. Long-term capital gains face a top federal tax rate of 20%, which is well below the top federal wage tax rate. States also don’t tax unrealized gains, and as a result, large increases in wealth can go untaxed for years - or decades.
UC Berkeley economists Akcan S. Balkir, Emmanuel Saez, Danny Yagan, and Gabriel Zucman, have found that the richest Americans pay an effective tax rate of about 24%, compared with about 30% for the average U.S. household. Actually, high-wage earners can pay closer to 45% because earners get most of their income from working. By contrast, the wealthy get most of their income from owning. It is a sobering truth for the vast majority of us that labor is taxed more than capital.
California currently has no state estate or inheritance tax, relying solely on the federal estate tax, which in 2025 exempted the first $13.99 million per individual —$27.98 million for couples - meaning that only the wealthiest estates face taxation. The elimination of California’s state-level estate tax in 1982 substantially reduced tax burdens on California’s wealthy by allowing the transfer of intergenerational wealth.
In addition, high-priced property is treated well in California. California’s Proposition 13 of 1978 caps the general property tax rate and limits increases in a property’s assessed value. Long-tenure owners can end up with assessed values far below market values, which disproportionately advantages high-income/high-wealth households who are more likely to own property, own higher-value property, and are able to hold onto their property. California has historically allowed these tax breaks to be passed on to their heirs.
Over the last decade or so, California’s high priced homes in LA and San Francisco increased in value over 85% and 77% respectively. In contrast, average hourly earnings for California’s total private workforce rose only 49%.
In such a system, workers are falling behind. Interestingly, political agreement is emerging across ideological lines that the wealth gap is too large and it is destabilizing. Federal Reserve data shows that in 2025 the top 1% of U.S. households held over 31% of all wealth — the highest share since tracking began in 1989 — while the bottom 50% held just 2.5%.
Editor’s Note:
Recent coverage of California’s proposed billionaire tax has appeared in major outlets, including the Los Angeles Times. It is also worth noting that many large news organizations operate within ownership structures shaped by immense private wealth. The Los Angeles Times, for example, is owned by biotech billionaire Patrick Soon-Shiong. This does not determine the conclusions of any individual article, but it is part of the landscape in which debates about taxing extreme wealth are reported and discussed. Readers should keep that context in mind as the conversation around the billionaire tax continues.
Pamela Nagler Pamela Nagler is finishing her book, Unceded Land, Indigenous California and the Foreign Invasions: Spanish, Mexican, Russian, US.
