California’s “Tax the Rich” Debacle

This November, California voters will decide whether to create a first-in-the-nation “billionaires’ tax.” But the state already has a similar wealth tax in its largest city – and the result has been abysmal failure.

In 2022, voters in Los Angeles approved a measure known as “United to House LA” (ULA). The policy, which went into effect in April 2023, creates a “mansion tax” of four percent on the closing price of properties that sell for more than $5.4 million and 5.5 percent on homes that sell for more than $10.9 million.

Proponents of ULA – including LA City Councilwoman Nithya Raman, who is now challenging Karen Bass in the mayoral race – sold it as a way to “make the rich pay their fair share” and raise money for “affordable” housing. They said it would raise about $900 million per year, or $2.7 billion over its first three years.

Instead, the tax has only brought in about $1.2 billion. As The New York Post reported, “the City has barely touched the cash, spending just $114 million as of May – less than 10 percent of the money raised.” RAND also estimates that the tax cost local, county, and state agencies $452 million in revenue, including $80 million that would have gone to Los Angeles public schools.

Even worse, according to a recent RAND report, ULA cut high-value real estate transactions by 31 percent, prevented the construction of more than 9,100 affordable housing units, and cost 16,650 full-time-equivalent construction jobs through early 2026.

In other words, the tax appears to have deepened the housing shortage it sought to address.

In fact, even calling it a “mansion tax” is deeply misleading, as ULA also applies to apartment buildings, vacant land, offices, warehouses, and other mixed-use projects.

Housing production requires a lot of cooperation from different private actors. A developer must buy land, secure financing, obtain approvals, build the project, and eventually sell it to an investor. A tax that adds hundreds of thousands – or millions – of dollars to that final transaction can kill a deal with already razor-thin margins. In LA’s astronomical housing market, many multi-million-dollar properties are hardly “mansions.”

A UCLA Lewis Center analysis reached a similar conclusion. Researchers found that ULA appears to have cut commercial, industrial, and multifamily transactions by 30 to 50 percent. They also found that the tax halved the likelihood that a property would sell above the $5 million threshold, jeopardizing return on investment for developers and de-incentivizing building.

Raman initially bragged that ULA is “the first housing initiative of its kind anywhere in the United States that will have such a widespread, immediate, and long-term impact on the housing and homelessness crisis.” However, she has since acknowledged that it “unintentionally stalls housing production,” and earlier this year she introduced a Measure ULA reform proposal that would exempt newly built multifamily, commercial, and mixed-use projects from the tax for 15 years. That proposal failed to make the June ballot.

ULA’s record is one of miserable and undeniable failure. But that hasn’t stopped California liberals from doubling down on their “tax the rich” slogan with Proposition 40, a one-time five percent wealth tax on fortunes above $1 billion.

Notably, this tax would be on the assessed net worth of individuals, not liquid capital. Some covered under the tax could be forced to sell significant assets just to pay the tax – perhaps triggering an overall decline in the stock market.

Supporters say the tax could raise $100 billion from roughly 200 people. But as The New Yorker reported, the proposal has split California Democrats, labor groups, and the state’s powerful technology sector.

Proposition 40 rests on the same assumption as ULA that the government can impose a major new cost on a narrow group of people without changing their decisions about where to live, build, and invest.

Even far-left Governor Gavin Newsom recognizes that the tax could be disastrous for the state’s economy and opposes the measure as high-net-worth individuals flee the Golden State for more tax-friendly climes like Nevada, Texas, and Florida. Yet, as AMAC Newsline recently reported, Newsom supports a national wealth tax because it would make that exit more difficult. Newsom’s position tacitly concedes that a state wealth tax works only if the government can limit taxpayers’ ability to vote with their feet.

Even Americans who live outside California should pay attention to the fate of Proposition 40. As the socialist faction of the Democrat Party grows ever more powerful, a similar “billionaires’ tax” will likely become a litmus test for Democrat presidential hopefuls in 2028.

Perhaps more than any other policy, wealth taxes reveal that Democrats’ agenda is built on what sounds appealing rather than what actually works. Their policies are based on slogans and “vibes” rather than hard realities about economics and human nature.

More precisely, Democrats’ political strategy is now predicated to a large extent on promising the 99 percent that they will rob the top one percent to “redistribute” the wealth in a more “equitable” manner. But as history shows, such an approach can only ever lead to poverty and economic disaster.

Soon, it won’t just be the “billionaires” Democrats are villainizing. It will be anyone who has worked hard to amass any amount of wealth. Ultimately, that is their goal – not the equitable distribution of wealth, but the elimination of wealth altogether.