Wednesday Morning Rant

California is very much in the news courtesy - this week - of the obvious chicanery involving the LA primary election. There is another reason that has ebbed and flowed over the past year, and that is California's (actually, the SEIU's) proposed "billionaire tax" that is on the ballot this autumn. This proposed "tax" is a simple expropriation. The tax scheme as proposed is fairly straightforwad. If someone has a net worth over $1.1 billion, California will confiscate 5% of his net worth. If someone has a net worth of between $1.0 and $1.1 billion, California will confiscate slightly less of his net worth. When the tax is due, he can pay the entire sum in full, or he can spread payments out over 5 years - with interest. The money will go to fund "shortfalls" due to Federal or state budget cuts to medical (Medi-Cal), food (CalFresh) or school budgets.

Set aside whether wealth expropriation is just or legal or proper. Set aside whether the primary medical services union sponsoring a ballot initiative to confiscate assets and transfer them to the medical industry is a conflict of interest. Set aside whether the confiscation will raise as much money as expected. Set aside whether the money raised will actually go where it is supposed to rather than be stolen. Set aside widespread fraud in these programs, and whether throwing more money at them is sensible. Set aside unintended consequences on capital structure. Set aside the risks of forced liquidation. Set aside all of the very real objections to such a scheme and consider what this would actually accomplish even if it works exactly as promised.

From the proposed act:

Medi-Cal is projected to lose up to $19 billion in annual federal funding due to the implementation of the most recent federal budget legislation and
administrative action, shifting costs to the state General Fund and local governments or forcing reductions in needed services. Over the next ten years, federal cuts to Medi-Cal alone are projected to total approximately $190 billion.

The loss of billions in federal funding further stresses California's already underfunded health care safety net. The 2025-26 state budget included several new restrictions, including cuts to providers and significant reductions in benefits and services for Medi-Cal enrollees. State cuts to Medi-Cal are estimated to reach $7 billion in 2027-28, rising to $8.6 billion each year from 2028-29 onward.

California has around 200 billionaires who collectively possess an astonishing $2 trillion in wealth. ...

Ninety percent shall be allocated to the Billionaire Tax Health Account for health care funding ...

Ten percent shall be allocated to the Billionaire Tax Education and Food Assistance Account for education-related and food assistance expenditures ...

A taxpayer owing any additional tax imposed under this Section shall have the option either to (1) pay any tax due under this Part along with any income tax owed for the 2026 tax year; or (2) pay annually in five equal installments commencing in the year the tax is due, with each subsequent annual installment payment also being subject to an annual nondeductible deferral charge of 7.5 percent of the remaining unpaid balance.

There's more, of course. The proposal has plenty of other conditions and definitions, including a couple of favorites around how net worth is to be determined and how, despite the fact that this would cause forced selling, values are determined based on calculated voluntary sale values in ideal markets. It's actually somewhat fascinating and the whole proposal is worth reading in a "through the looking glass" kind of way, but the basics are in the excerpts above. That's all the variables and the rest is simple algebra.

Per the proposal, the new confiscation will affect around 200 people with about $2 trillion in net worth. Much of that is unrealized (it's stocks, bonds, other equity positions, real property, etc.), but whatever. The proposed 5% tax on $2 trillion in combined assets amounts to $100 billion, assuming perfect compliance, no carve-outs or exemptions, no problems with liquidation, etc. If nobody pays in full and instead everyone takes the more expensive option of paying over five years, that is actually quite a bit more rake-off for the state. It would be $20 billion in the first year, $26 billion in the second year, $24.5 billion in the third year, $23 billion in the fourth year and $21.5 billion in the fifth year for a total of $115 billion. The best-case scenario for the state is new receipts of $115 billion over five years from this one-time expropriation. 90% of that, or $103.5 billion, goes to Medi-Cal. In the best case scenario.

And, of course, if you expect this to raise as much as expected, and for there to be no losses, and for the money to go where it is supposed to, and for fraud to be a non-issue, and for these programs to otherwise be contained and well-managed, well, pull the other one. It jingles. But even that is beside the point. Per their own numbers, this proposal handles "shortfalls" in Medi-Cal for around five years. Even in a vacuum where everything works perfectly with no negative consequences foreseen or unforeseen, this buys a few years for Medi-Cal. That's it. It solves no problems, it just defers them and not even for very long. This basic problem is not an uncommon one in government finance. Fix real problems? Nah. Solving problems is boring and gores somebody's oxen. Just steal it and call it justice! I have no sympathy for California's billionaires - they climbed into bed with these people and if they get the clap, well, they should have chosen better bed-mates - but it will be interesting to see how far the next "one-time" expropriation goes when five years turns into two or three.

If it happens at all, anyway. Whether California's ambitious new stopgap will work is not the question. It won't. It will raise nothing like as much as expected and it will be spent far faster than expected and much of it will be stolen. No bookie would take a bet otherwise. The question is just whether it passes. It's on the ballot in November, and we all know what that means. With the outlandish and obvious manipulations going on in the LA primary, it has become clear even to those who don't pay much attention that "ballots" in California say whatever the Party wants them to say. Whether this passes depends entirely and exclusively on whether the Party wants it to. That's up in the air and the Party is not unified on the issue, but it will be before November.

And by then the ballots will show, as they always do in banana republics, whatever the Party wants them to show.

posted by Joe Mannix at 11:00 AM

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