California’s Billionaire Exodus: The Impacts of Proposed Taxation

California’s economy is facing a significant crisis that is rooted not in natural disasters, but in a series of policy decisions that have led to the potential exodus of its wealthiest residents.

The top 1% of earners in California contribute nearly half of the state’s income tax revenue, while the top 5% account for a staggering 70%.

This revenue is crucial for funding essential services such as education, infrastructure, and public safety for the state’s 40 million residents.

As a result, when tax attorney David Lesarants reported that his billionaire clients expressed a desire to leave California in response to a proposed new tax, it raised alarms about the potential impact on the state’s budget.

According to recent data, this departure is already in progress.

In late January 2026, Lesarants revealed to the Washington Post that he had assisted four billionaire clients in relocating out of California before the new year.

Their combined net worth totaled $600 billion, with three moving to Florida and one to Texas.

After reviewing the details of the proposed wealth tax, these clients concluded that leaving California was the most sensible decision.

Lesarants noted that each of his clients who analyzed the situation quickly decided to exit, stating that it was a no-brainer.

The $600 billion in wealth that has relocated is roughly equivalent to the annual GDP of Sweden.

This capital has been instrumental in funding startups, creating jobs, and generating tax revenue for California.

However, with this wealth now registered in other states, the implications for California’s economy are severe.

Venture capitalist Chamath Palihapitiya claimed on social media that by early January, 50% of California’s $2 trillion in billionaire wealth had left the state.

Although this figure has not been independently verified, the California Legislative Analyst’s Office projects income tax losses in the hundreds of millions of dollars annually, which is critical for a state that has faced budget deficits for four consecutive years.

The catalyst for this migration was the introduction of the 2026 Billionaire Tax Act, a ballot initiative filed by the Service Employees International Union and United Healthcare Workers West in late October 2025.

This proposal called for a one-time 5% tax on net worth exceeding $1 billion, with payments due by April 15, 2027, or spread over five years.

For context, a 5% tax on a billion dollars amounts to $50 million, while on ten billion dollars, it totals $500 million.

Such sums could fund an entire school district for a decade or, conversely, leave the state entirely if the billionaire decides to relocate.

A crucial aspect of the proposed tax is its retroactive structure.

It would apply to anyone who was a California resident on January 1, 2026, regardless of when the initiative passes.

This means that if an individual was living in California on New Year’s Day and the initiative passes in November, they would owe the tax regardless of their subsequent relocation.

This deadline created a sense of urgency among the wealthy, prompting many to take immediate action.

Warnings about the potential consequences of the tax came swiftly.

Y Combinator CEO Gary Tan cautioned that the proposal could devastate California’s technology startup ecosystem.

If startups begin to leave, the jobs they create and the tax revenue they generate would follow suit.

Palmer Luckey, founder of the defense contractor Anduril, expressed concerns that the tax would force founders to sell significant portions of their companies just to cover the tax bill.

This would jeopardize thousands of jobs, as companies would be forced to downsize or relocate.

The situation escalated rapidly in late December 2025 when several high-profile tech leaders took action.

Google co-founder Larry Page converted more than 45 California limited liability companies to inactive status or moved them out of state, subsequently purchasing $173 million in real estate in Miami.

Sergey Brin moved his companies to Nevada, while Peter Thiel announced the opening of Thiel Capital’s Miami office.

These moves were part of a broader trend, as Elon Musk had already relocated to Texas in December 2020, and Oracle founder Larry Ellison moved to Hawaii.

This migration was not occurring in isolation.

The IRS data reveals a troubling trend.

For the tax year 2021 to 2022, California lost more tax filers than any other state, with a net loss of over 144,000 filers.

In total, more than 350,000 people left the state, while Texas gained approximately 130,000 new residents and Florida welcomed around 90,000.

The direction of this migration is clear.

Among households earning $200,000 or more, California experienced a net loss of nearly $25,000.

The adjusted gross income that these high earners took with them amounted to $16 billion, which included their income taxes, property taxes, and often their employees.

The Tax Foundation has reported that the loss of income tax collections due to this out-migration now represents 1.

6% of California’s total personal income tax revenue.

This figure has doubled from the pre-pandemic rate of 0.

5%.

The trend is accelerating, with $16 billion in adjusted gross income already gone and hundreds of millions more projected in annual losses.

The departure of $600 billion in billionaire wealth before the January 1 deadline has compounded the problem, and the proposed tax has not yet even passed.

California is home to roughly 250 billionaires, and if even 50 of them establish residency elsewhere, the implications for the state budget would be profound.

The Legislative Analyst’s Office projects income tax losses in the hundreds of millions of dollars annually, and if this trend continues over the next decade, it could lead to billions in lost revenue from a taxpayer pool that numbers fewer than 300 individuals.

Governor Gavin Newsom’s tone has shifted significantly in response to the crisis.

In December 2025, he stated that one cannot isolate oneself from the other 49 states.

By January 2026, he expressed his concerns to Politico, saying that what he had warned against was indeed happening.

Regarding the ballot initiative, Newsom was blunt, declaring that he believed it would be defeated.

However, he cannot veto a ballot initiative; he can only campaign against it.

While some supporters dismiss the relocation threats as exaggerated, others point to examples from other states.

For instance, Massachusetts passed a millionaire tax in 2022, and contrary to predictions, millionaires did not flee as expected.

UC Berkeley professor Brian Galle, who helped draft the California initiative, argued that much of the talk about wealthy individuals leaving is overblown.

He noted that the majority of wealthy people do not leave because it does not make sense for them to do so.

Research by Cornell sociologist Crisal Young indicated that millionaires migrate at a rate of only 3%, while young college graduates migrate at a rate of 12%.

The Berkeley Expert Report contends that billionaires contribute only about 2% to 12% of California’s income tax receipts, suggesting that their departure may not be as impactful as feared.

Additionally, since the tax is a one-time levy rather than an ongoing obligation, there is no continuous incentive for wealthy individuals to leave.

For middle-class Californians, the implications of these dynamics are far from abstract.

When the top 1% pays nearly half of the state’s income tax revenue, any significant departure creates a budget gap.

This gap must be filled either through cuts to services or increased taxes on everyone else.

California already has the highest state income tax rate in the nation, and its revenue is highly volatile due to its reliance on capital gains taxes.

In 2022, the state reported a $100 billion surplus, but by 2024, it faced a $56 billion deficit.

This same tax structure that produces windfalls can also lead to significant shortfalls.

The proposed wealth tax, if enacted, could raise tens of billions of dollars over several years.

However, ongoing decreases in income tax revenues are projected as billionaires leave permanently.

The critical question remains: what happens after the one-time revenue is spent?

Not all wealthy individuals are planning to leave.

For example, Nvidia CEO Jensen Huang, worth around $160 billion, indicated that he would remain in California, stating that he is fine with whatever taxes the state wishes to impose.

However, he is just one individual.

The proposed initiative would impact an estimated 250 California billionaires with a combined wealth exceeding $2 trillion.

As of late January 2026, the 2026 Billionaire Tax Act is still in the process of gathering signatures, and reports indicate that at least six billionaires left California before New Year’s, with potentially 12 more planning their departures.

In response to the growing concerns, five counter-initiatives have been filed, and legal challenges are anticipated on the grounds of due process and the commerce clause.

Historically, no state has successfully implemented a wealth tax.

The signature deadline for the initiative is June 25, and if it qualifies, voters will decide its fate in November.

The billionaires who have already left are gone, while those who remain will be closely monitoring the ballot’s outcome.

Meanwhile, the 40 million Californians who rely on a functional state budget will have to navigate the consequences of these developments.

In conclusion, California’s proposed wealth tax has triggered a significant migration of its wealthiest residents, raising serious concerns about the long-term implications for the state’s budget and economy.

As billionaires relocate to avoid the tax, the state faces potential revenue losses that could lead to cuts in essential services or increased taxes for the middle class.

The situation underscores the delicate balance between ambitious environmental policies and the economic realities faced by residents and businesses alike.

As discussions around the tax continue, the stakes remain high for all Californians.