No to the wealth tax. Notes for Democrats on both sides

American voters have rejected Trump: but have they really voted in favour of a ‘socialist’ shift, as the most radical factions of the Democratic Party would like? A striking call for caution comes from California, where several referendums took place on election day, including two relating to wealth taxes. In particular, ‘Proposition 40’, which, if approved, would have imposed a one-off 5 per cent tax on the wealth of billionaires resident in the state as at 1 January 2026; ‘Proposition 42’, on the other hand, proposed a constitutional amendment to prevent new taxes on the ownership of personal assets and forms of savings, as well as retroactive levies. The former was rejected by 56 per cent of voters; the latter was approved by a 54 per cent majority.

It is above all the wealth tax that has deeply divided the political world and, even before that, the academic world. The best-known public face of the proposal, put forward by the SEIU-United Healthcare Workers West trade union, was the economist Gabriel Zucman, one of Thomas Piketty’s most talented pupils. In various articles and speeches, and subsequently in a study with Emmanuel Saez of Berkeley and Jasper Boll of the Paris School of Economics, Zucman argued that the introduction of the tax would improve the fairness of the US tax system. Zucman sought to address one of the strongest criticisms: that billionaires would leave the country, thereby reducing tax revenue and leaving fewer resources for the community. 

An Achilles’ heel, which had prompted the Democratic governor, Gavin Newsom, to distance himself from the issue, even rejecting the idea of a reduced rate of 2 per cent rather than 5 per cent. Thus, the debate shifted from the political to the academic arena. Among others, economists Benjamin Jaros and Joshua Rauh (Stanford) argued that the risk of taxpayers leaving the state was very real: expected revenue would plummet to around $30 billion, roughly a third of the $100 billion forecast by the proponents. Legal disputes, which were by no means unlikely, would also have contributed to a reduction in revenue, given the retroactive nature of the tax. Billionaires pay between 3.3 and 5.8 billion dollars in income tax in California each year: taking into account the loss of this revenue stream, the net present value of the levy would have been negative by almost 40 billion.

The publication of the study was followed by a heated debate. Zucman and Saez accused their critical colleagues of treating the levy as if it were permanent, when in fact it was a one-off measure, and of ignoring the fact that the tax would still apply to those who were resident on 1 January 2026, even if they had already moved elsewhere. Jaros and Rauh countered that some billionaires had already taken action, taking 30 per cent of the tax base with them. But above all, they observed, it is the proponents themselves who are campaigning to adopt the wealth tax on a structural basis; therefore, the threat to billionaires would have been more than credible had the referendum passed. The involvement of six Nobel laureates in economics, who had endorsed the proposal, proved of little use: not only the voters, but even the experts were not swayed by the signatories’ authority. In a survey of 105 academics in the field, around 70 per cent declared themselves opposed, particularly among economists and accountants (whilst lawyers proved more inclined to support it).

What makes the result even more significant is the geographical breakdown of the vote. Of the 58 Californian counties, only 9 saw a majority in favour of Proposition 40: of these, two are among the ten richest and only one among the poorest. The result is even more polarised for Proposition 42, the measure that blocks the introduction of future wealth taxes: of the 12 counties that voted against it, five are among the wealthiest. These figures alone do not allow us to deduce how individual social classes voted; however, they suggest that support was by no means uniform, and that the proposal met with resistance particularly in the less affluent areas. The Californian working class, which voted against the one-off wealth tax for the past and against the regular wealth taxes for the future, does not appear to have followed the guidance of its self-appointed defenders.

That is not all: yesterday, further referendums took place in the United States, many of which concerned taxation, and several had similar outcomes to the one in California, for example in Iowa, North Carolina and Tennessee. Ironically, the left-wing faction of the Democratic Party can claim victory in the referendums promoted by the Mayor of New York, Zohran Mamdani. But not on new taxes. On the contrary, these victories were mainly on administrative simplifications and deregulation, for example regarding the use of public spaces, contracts and planning permission.

In short, the ‘blue tide’ is not a blank cheque and does not necessarily imply support for a programme of new taxes. Italian followers of the Democrats, such as Elly Schlein—who has repeatedly spoken out in favour of a wealth tax—would do well to reflect on this. But the centre-right, which claims to oppose it, should also take note: it has included an ‘exit tax’ in the budget bill for those leaving the country. It is not a wealth tax in the strict sense, but it certainly seems like a precursor to one.