How to Tax a Billionaire

This November, California voters will weigh what could become America’s first-ever tax on net worth. The Billionaire Tax Act, a ballot initiative put forth by health workers after President Donald Trump blew holes in the state Medicaid budget, would impose a one-time tax of 5 percent on personal wealth exceeding $1 billion. With polls indicating majority support, tech oligarchs have threatened an exodus and crafted competing measures, bankrolling them to the tune of at least $118 million, of which $82 million came from Google’s Sergey Brin, according to the Associated Press.

On the other side is University of ­California, Berkeley, law professor Brian Galle, who helped write the initiative, along with several other, federal, efforts to tax the obscenely rich. These bills seldom go anywhere, even though ordinary Americans would very much like their government to do just that, as a 2024 report from the amusingly named ­Excessive Wealth Disorder Institute made clear.

The nonprofit examined 56 national and state polls on specific redistributive proposals and found majority support for most. People favored surtaxes on incomes over a million bucks, and for the rich to pay at least the rate on their investment gains as workers pay on their wages. They also wanted Congress to kill intergenerational dynasty trusts that grow, untaxed, in perpetuity, and they favored a dramatic reduction in the gift and estate tax exemption, now $30 million, which is the amount of money a superwealthy couple can pass along to their heirs without paying a dime.

Direct wealth taxes were the most popular: Roughly two-thirds of respondents, including 51 percent of Republicans, favored the Ultra-Millionaire Tax Act first introduced in 2021 by Sen. ­Elizabeth Warren (D-Mass.) and again this year by Rep. Pramila Jayapal (D-Wash.). That bill places a 2 percent annual tax on net household assets exceeding $50 million and 3 percent on those over $1 billion. Similar bipartisan support went to proposals from Sen. Ron Wyden (D-Ore.), Rep. Steve Cohen (D-Tenn.), and others that would tax unrealized gains on billionaires’ unsold assets, paper profits the IRS currently won’t touch.

Nobody has managed to pass a federal tax on wealth, or on the unrealized gains that represent the majority of income for the very rich.

That these bills have not come close to passing hasn’t stopped new proposals like the Oligarch Act, reintroduced in 2025 by Rep. Summer Lee (D-Pa.), which puts a 2 percent tax on wealth exceeding 1,000 times the national household median, rising to 8 percent on assets over a million times the median. (Only five families qualify, its author assured me.) In March, Sen. Bernie Sanders (I-Vt.) and Rep. Ro Khanna (D-Calif.) introduced the Make Billionaires Pay Their Fair Share Act, a 5 percent annual tax on net household assets exceeding $1 billion.

The challenge with any federal wealth tax, as Galle explains to me over chocolate-infused green tea at an Oakland cafe, is not just overcoming well-heeled opposition, but passing constitutional muster. Even the income tax as we know it wasn’t allowed until the 1913 ratification of the 16th Amendment. Before then, it was, as any federal tax on wealth would almost certainly be deemed by the Supreme Court, a “direct tax,” which the Constitution says is subject to “apportionment.”

To impose a direct tax, in other words, lawmakers would first have to decide how much money they wanted to collect, and then direct each state to raise its share of the total according to its share of the nation’s population, not its billionaire population. It was unworkable even in the 1800s. As Galle put it: “A direct tax at the national level has to ride in on a unicorn.”

But no unicorn is needed at the state level, where the Constitution’s direct tax rule does not apply. In fact, every state already taxes wealth by way of property taxes, though even those favor the rich: Most of a middle-class homeowner’s assets tend to be tied up in their primary residence, whereas a very rich family’s home usually accounts for a small fraction.

DC and seven states have passed so-called millionaire taxes, the latest being Washington, which enacted a law that will charge zero tax on incomes up to $1 million, but 9.9 percent on each additional penny. Rep. Don Beyer (D-Va.) and Sen. Chris Van Hollen (D-Md.) introduced a federal version in March.

Alas, such taxes don’t touch unrealized investment income, an exemption that enables America’s richest to dodge income tax almost entirely via an infuriating tactic known as “buy, borrow, die.” Rather than sell stock for money to live on, ultrawealthy investors simply take out low-interest loans against their assets. When they die, thanks to a legal abomination called the “step-up in basis” rule, their princelings inherit the unsold assets at market value, thus avoiding the 23.8 percent capital gains tax their parents have now deferred to the grave. “We don’t tax wealth, we tax income,” explains Harvey Dale, a New York University tax law professor who advises billionaire clients. “For people who have a huge amount of property and are ultrawealthy, they can avoid having very much income.”

“The people who really hate, hate, hate taxes? Most of them have already left [California].”

Unrealized gains are, essentially, ­income, just ask the bankers who accept them as collateral. But Congress has never touched them. If it did, the Roberts court has signaled it wouldn’t play along. “We all thought that there’s no way the Supreme Court’s going to say that income only gets measured at sale,” says Galle, who had helped craft one of Cohen’s efforts to tax unrealized gains. But the court’s 2024 ruling in Moore v. United States made clear that it would do just that. The takeaway is that a federal tax on either wealth or paper gains will require another constitutional amendment, the likelihood of which, Dale says, “seems to be something slightly below zero.”

Which helps explain why voters and lawmakers are exploring local options like New York City’s pied-à-terre tax (which passed) and San Francisco’s “Overpaid CEO” ballot measure (which didn’t). Every such move begets a flurry of op-eds warning that the “golden geese” will fly off to another city, state, or even country, as some of Dale’s clients have. History suggests few actually will. As an analysis from the Center on Budget and Policy Priorities notes, California already has the nation’s highest marginal tax rate, but boasts the second-lowest rate of out-migration among households earning more than $200,000. Then again, we’re talking about billionaires.

Allen Prohofsky, who spent 15 years as the chief economist at California’s Franchise Tax Board, told me he suspects the fear of billionaire flight is overhyped when it comes to the tax initiative, but he isn’t certain. “If anybody tells you they’re sure they know what’s going to happen,” he says, they’re either lying or “delusional.” He adds: “The people who really hate, hate, hate taxes? Most of them have already left.”

Brin, up in arms over the proposed billionaire tax, now says he spends just enough time across the border in Nevada to qualify as a resident, the Franchise Tax Board has a special enforcement unit that may ask him to prove it, Prohofsky notes. David Sacks, Mark Zuckerberg, and Peter Thiel, too, have made moves toward the door. But for most wealthy people with families and important business and social connections in the state, Prohofsky explains, there’s “a host of variables” that keep them around. Dale agrees. Leaving one’s state or country is “a very complicated and ultimately personal decision, but it doesn’t blend down easily into something simple,” he says.

It’s too late, anyway, to flee this tax, which is set to apply to any billionaire who was a California resident on January 1, 2026. Proponents calculate that the state will gain about $100 billion. Foes at the conservative Hoover Institution claim departures will ultimately cost California $25 billion. (Galle helped write a thoughtful takedown of the Hoover analysis, but emailed me a more succinct response: “LOL.”) Op-eds opposing the tax have pointed out that ­California’s richest 1 percent account for nearly 40 percent of income tax revenues, which, if true, is meaningless: The billionaires targeted by this proposal are but a tiny sliver of that 1 percent. An analysis by Galle, UC Berkeley economist Emmanuel Saez, and two colleagues estimates California’s roughly 200 billionaires account for only about 1 percent of state tax revenue.

Brian Galle’s “fair tax” proposal doesn’t touch wealth, but it does have the potential to eliminate “buy, borrow, die.”

Galle’s latest idea: taxing unrealized gains constitutionally through a “fair share tax,” a strategy he helped mastermind and that is on track to be introduced as a House bill this summer. The tax would apply only to households with more than $15 million in lifetime investment gains, targeting, and yes, this sounds weird, their realized unrealized gains.

Normally, when a rich family holds stock or another asset for years, they pay a 23.8 percent tax on the profits when they eventually sell, or pass the assets to their kids at death and pay zero. Under Galle’s proposal, the tab would be substantially higher, calculated as though the unsold stock’s appreciation were taxed every year, with interest tied to the annual increase. This would wipe out the advantage of holding stocks forever. It also deals with the “step-up” rule, because the tax burden moves with the asset, not the person. An heir can sell inherited stock or not, but either way, someone eventually has to pay up, with interest.

Because the tax is imposed only after the income is realized, Galle is convinced his approach will satisfy the Supreme Court. To be fully effective, though, it would need to apply to assets held in complex trusts. After all, an “inevitable part of the tax planning game,” Dale says, is that every new rule prompts an army of $3,000-an-hour lawyers to scurry for loopholes.

The Fair Tax isn’t an actual wealth tax, but something like Galle’s approach has the potential to kill “buy, borrow, die,” and to begin to tame a democracy-distorting gap between rich and poor in a nation where billionaires now flex their political power openly and shamelessly. Passing it would be quite the feat, if only our elected officials can somehow, miraculously, summon the fortitude.