California Doesn’t Have a Wealth Tax… The Wealthy Left Anyway

One of my clients moved to Texas two years ago. He’d built a software company over twenty years, sold it, and ended up with a concentrated position in a private fund and a house in Palo Alto worth more than most people earn in a lifetime. He didn’t leave because he hates California. He left because Sacramento had spent three years telling him, in increasingly specific legislative language, exactly how it intended to keep taxing him after he was gone.

He’s not alone. IRS migration data show California losing tens of billions in adjusted gross income annually, with Texas and Florida capturing the majority of the outflow. The exits cluster among ultra-high-net-worth households, the ones with private equity stakes, real estate portfolios, and investment structures complex enough that a marginal tax rate matters more than sunshine.

Here’s the part that surprises people who haven’t followed Sacramento closely: California does not have a wealth tax. It has tried twice. It has failed twice. And the wealthy left anyway, which tells you something the failed bills themselves can’t.

The first attempt was AB 2088, authored by then-Assemblyman Rob Bonta in 2020. It proposed an annual wealth tax of 0.4% on worldwide net worth above $30 million, with a tail provision that kept taxing former residents for up to ten years after they relocated, on a declining scale. Leave for Texas, and for a decade Sacramento would still claim a share of wealth accumulated while you lived here, including assets in states where California has no presence. Even Bonta’s own staff conceded the bill wasn’t moving anywhere. It died in committee in November 2020.

That should have ended it. It didn’t. In January 2023, Assemblyman Alex Lee (D-Palo Alto) introduced Assembly Constitutional Amendment 3, paired with a companion bill taxing net worth above $50 million at 1% and above $1 billion at 1.5%. A constitutional amendment was required because the California Constitution caps the tax rate on personal property at 0.4%, and Lee’s number ran well past it. ACA 3 opened with six WHEREAS clauses, one stating plainly that California has long-term needs not being met by existing revenue sources. Translation: the state wants more, and the rate cap is in the way. ACA 3 died in committee in November 2024, same as its predecessor.

Two bills, four years apart, two different authors, the same result. Sacramento couldn’t get a wealth tax out of committee either time. And the people with the most to lose didn’t wait around to see if a third attempt would go differently.

That’s the part of this story the legislative history alone won’t tell you. A credible threat doesn’t need to become law to change behavior. A sophisticated investor doesn’t run his own odds on a single committee vote. He runs them on a trend line: two serious attempts in four years, each more aggressive than the last. A wealth tax that fails this session is, to a family office, simply a wealth tax that hasn’t passed yet.

Which raises the question Sacramento doesn’t seem to want answered: even if a wealth tax cleared committee and survived a floor vote, would it survive the Constitution it would have to operate under?

The Sixteenth Amendment reads: “The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several states.” Note the subject. Congress, not California. The amendment is a federal power grant; written to give Washington the authority it lacked after the Supreme Court struck down the income tax in Pollock v. Farmers’ Loan and Trust Co. in 1895. It created no parallel state authority. California’s own taxing power comes from the California Constitution, the same document that currently caps personal property rates at 0.4%.

Even with that cap lifted, a wealth tax with an exit tail runs into the Due Process Clause of the Fourteenth Amendment, which has long required, in the Supreme Court’s words from Miller Brothers Co. v. Maryland (1954), “some definite link, some minimum connection,” between a state and the person it seeks to tax. A state can tax residents on worldwide income and non-residents on income sourced within the state. It cannot reach people who have actually left, who’ve surrendered their driver’s licenses, sold their property, and established residence elsewhere, on the theory that the state once taxed them. A ten-year tail doesn’t create a connection by asserting one.

Comptroller of Maryland v. Wynne (2015) cuts the same direction. The Court held that Maryland’s scheme of taxing residents on out-of-state income while granting only a partial credit for taxes paid elsewhere violated the dormant Commerce Clause by discriminating against interstate commerce. A wealth tax reaching assets held and managed in other states runs into an identical structural problem.

Then there’s the deeper question buried under both bills: what a wealth tax actually is. The Sixteenth Amendment authorizes a tax on income. A wealth tax taxes accumulated net worth instead, much of it already taxed once when earned, some of it never generating income at all. In Moore v. United States (2024), five justices wrote carefully to avoid endorsing an unlimited federal power to tax unrealized appreciation, even at the congressional level the Sixteenth Amendment actually governs. Neither AB 2088 nor ACA 3 survived long enough to test that question at the state level.

I’ve spent thirty years advising clients on structuring capital, private equity stakes, private credit positions, family office holdings, around the tax treatment a jurisdiction will apply. The conversations I’ve had about California have changed character. They used to be about optimization: managing an aggressive income tax structure without triggering an audit. Now they’re about exposure to a state that has shown, twice, that it’s willing to propose taxing wealth it no longer has any plausible claim to.

The IRS data tells you what these households concluded. They didn’t wait for a court to settle whether AB 2088 or ACA 3 would have survived a constitutional challenge. They looked at two bills, two sets of co-authors, and a state government that keeps returning to the same idea, and they left before anyone had to find out.

California’s wealth tax isn’t a constitutional problem yet, because it isn’t a law. It’s a pattern, and patterns are what sophisticated capital actually prices. Sacramento has tried this twice in four years. The wealthy aren’t betting it stops at two.