Tech billionaires are making plans to bail on California ahead a possible ballot measure that would tax their assets to help pay for healthcare.
Sources told the New York Times that venture capitalist Peter Thiel has explored spending more time outside California and opening an office for his Los Angeles-based personal investment firm, Thiel Capital, in another state.
Liquidity issues.
For example, loads of elderly people in California own homes that have very low property taxes which were assessed decades ago. If their property values were re-assessed today they wouldn’t be able to afford the property tax and would have to sell their home and move (possibly flee the state).
Now that’s not the situation these billionaires are in. They aren’t tied up in a single house they’d have to sell. Their issue is that they’d have to sell a lot of stocks to pay a wealth tax, an event that could trigger a huge market drop in the price of those stocks.
You can be extremely asset-rich while being relatively cash-poor. I say relatively because these billionaires likely have millions in cash sitting around but that might not be enough to afford tens of millions in taxes every year (which must be paid in cash, not stocks).
I’m one of those people who’s a bit asset-rich while not at all cash-rich. I’m not whining to anyone about it, that’s the way I arranged things, and there were benefits to it as well as risks. I saw the tradeoffs and made my choices. I can always sell one of the properties if I need to, or take a bit more of a mortgage on it (my overall debt/equity is about 18%, so mortgaging is easy). But people with more are more able to pay, regardless of their asset-allocation choices. The whole “granny starving in a $3M house” story is a malicious crock of shit that only a fool would fall for.
And same with those billionaires. In fact, their asset allocation challenges don’t mean a fucking thing to me. They’re filthy rich due to a broken, crooked system. In a sane, healthy society there wouldn’t be billionaires at all. So a correction is needed. They can take a haircut or they can face a much more extreme reckoning in the future. Up to them. And if they want to up sticks and move to Dallas, that’s their choice too. They can go be parasites on a less aware host.
I’m not whining on their behalf, I’m warning that this approach to taxation will not hit the intended target. Billionaires whose assets are mostly concentrated in stocks have no reason to make California their primary residence. They can live anywhere in the world and if forced to they will do so.
If you want an effective tax on tech billionaires you should find a way to tax an asset they can’t move: intellectual property. That’s where all tech billionaires ultimately derive their wealth. I personally am against IP altogether, but I’ll take an IP tax as a consolation prize.
It goes without saying that land value tax is another tax on assets that can’t be moved. I also want to see LVT tried.
I’ve seen the “one person selling lots of stocks in an otherwise healthy company to raise cash tanks the market” claim repeated so many places as one of these “everyone knows this, it’s obvious” facts, and yet it never seems to play out that way to any meaningful degree. It’s one of the many Big Lies of capitalism that we’ve just been tricked into accepting.
You might occasionally see a minor one day dip of a few percent at worst, and even then they’re usually caused by some underlying issue unrelated to one person’s need for liquidity.
The taxes aren’t on one person though, they’re on everyone. Everyone looking to sell their stocks at tax time => price goes down because no one is looking to buy.
If their portfolios were properly diversified, you wouldn’t see that effect on the overall market.
5% is a pretty high wealth tax, so I actually find this credible.
As rough as property tax can be, 5% would be crazy. Imagine being told you owe 25,000 dollars because Zillow shows houses near you selling for 500k…
I prefer the concept of stock secured loans counting as income.
Did you just swallow the hook and line, or the sinker too?
I mean I’m middle class and could afford this… sure I wouldn’t be happy about it but the idea that it would be so onerous on literal billionaires seems absurd.