Every politician eventually runs out of money to spend on others. Blue state governors and legislators are just getting exhausted faster than the rest.
Right now there is a coordinated wave of new tax proposals sweeping California, New York, Washington State, Massachusetts, Michigan and Connecticut. The common thread? They all believe the solution to a budget crisis of their own making is to reach deeper into the pockets of their most productive residents. And if those residents decide to leave, they want to charge them an exit tax upon their departure. What? Is this America?
Let that sink in for a moment. An exit tax. As in, we know you’re leaving because of our bad tax structure, and we want the door to swing open for you on your way out.
CALIFORNIA’S HATE FOR CAPITALISM KILLS THE GOOSE THAT LAYED ITS GOLDEN EGG
The proposals that are now on the table
California’s Billionaire Tax Act is the crown jewel of this movement. The ballot measure would impose a one-time 5% tax on the total wealth of anyone worth more than $1 billion who lives in the state. Not their income. Their net worth. Think about what that means for a founder whose entire wealth is locked up in a private company that employs thousands of people. And think of how many millionaires they made themselves by building that company. You could have $2 million in liquid assets, and a $100 billion paper appraisal, and California would hand you a $5 billion tax bill. That’s not tax policy. That is asset seizure dressed up as honesty.
Washington state, which has never had an income tax in its history, just implemented a 9.9% tax on incomes over $1 million. At the time the bill passed the Legislature, Starbucks founder Howard Schultz announced he was moving to Florida. Shocking. Starbucks’ own headquarters has announced it is moving to Tennessee. Shocking. If the founder and the company leave at the same time, it is no coincidence. That’s a message we’re hearing loudly from high-tax, high-spending states.
Michigan wants to amend its state constitution to impose a top rate of 9.25% on incomes above $500,000. For Detroit residents, the combined state and local rate would approach nearly 12%. Meanwhile, the flat income tax rate across the border in Ohio is 2.75%. In Indiana it is 2.95%. You don’t have to be a certified financial planner to do that math. All you need is a moving van.
SEAHAWKS GM WARNS WASHINGTON’S NEW ‘MILLIONAIRE TAX’ COULD DAMAGE FREE AGENTS RECRUITMENT
This is a story about bad leadership decisions
I want to be clear about something. I’m not here to defend billionaires. I’m here to defend economic reality.
The top 1% of California taxpayers currently provide nearly half of all income tax collections in the state. Half. That is not a sustainable revenue model. That’s a house of cards. And the moment the top earners, who are not only the billionaires, but also the $500,000-a-year business owners, the startup investors and the executives, start moving, the math collapses for everyone else left behind.
MAMDANI’S OVER-TAX PLAN COULD DRIVE WEALTH OUT OF THE STATE, critics warn
This has already started. Six of California’s 214 billionaires left before the proposed termination of their residency on January 1, 2026. Those six people alone took with them $27 billion in potential tax revenue. Google co-founder Larry Page dropped $170 million on a Miami estate and moved his family office from California. David Sacks, who lived in the state for 30 years, packed up for Texas and called the proposed tax what it really is, asset forfeiture.
This is what I have learned in more than thirty years as a financial advisor. Rich people don’t wait for the bill to come. They plan years in advance. The exits happening today were decided 18 months ago at law firm and financial planning meetings. The exits that have not yet taken place are currently being decided.
Why this should matter to you, even if you’re not a billionaire
WASHINGTON DEMS HAVE PASSED AN INCOME TAX THAT THEY KNOW IS UNCONSTITUTIONAL. THAT WAS THE POINT
This is where this stops being an abstract policy debate and starts affecting your daily life.
When high earners leave a state, the remaining tax base has to foot the bill. Services are being cut back. Or taxes are levied on the next tier of earners, which are the people who make $150,000, then $100,000, and then lower. California, New York and Michigan did not build world-class universities, hospitals and infrastructure by accident. They built them on the backs of a thriving private economy. Dismantle the engine and eventually the whole train stops.
A broader economic signal is also being sent here. When Washington State ceases to be a no-income tax state, when California makes it financially dangerous to be a successful founder, and when Michigan penalizes its highest earners by nearly twelve cents on the dollar, innovation, capital, and job creation will go elsewhere. And elsewhere, right now, are Florida, Texas, Tennessee and Nevada.
California’s looming capital flight problem could reshape the state in three key areas
What to do now
If you live in one of these states and have built up significant wealth, including a business, a portfolio, a real estate asset or a qualified retirement account, this is not a news story to scroll through and forget. This is a planning meeting with your financial advisor and your estate planning attorney. Several of these proposals include exit taxes for residents who leave within five years of implementation. The time to plan proactively is now. Not after the ballot measure is passed. Not after the bill is signed. Now.
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Rich people are not a fixed resource. They’re mobile, they’re organized, and they have options.
And right now, those options look a lot like the Sunshine State rather than the Golden State.
