Tax on Billionaires

Episode transcript:

Note: This transcript is generated from a recorded conversation and may contain errors or omissions. It has been edited for clarity but may not fully capture the original intent or context. For accurate interpretation, please refer to the original audio. 

JOHN QUINN: This is John Quinn, and this is Law, disrupted. Billionaires are leaving the state of California because there’s a petition being circulated that would impose a one time 5% wealth tax on billionaires who are in residence in California, as I understand it, as of January 1st, 2026. And we’re gonna be talking with my partner, John Bash, who’s in our Austin office.

At the beginning, I should say that our firm is professionally involved in legal issues relating to this billionaire tax proposition in California. So we’re not going to be giving legal advice or getting into the legal strategy or the substance of the evaluation of the various kinds of claims and challenges that might be made to this tax.

So I know a lot of people would like to hear about that, but we’re involved in this ourselves, so we’re not going to, we’re not in a position where we can talk about that publicly. But we’re gonna talk with John a little bit about the broad outlines of the tax and what the timing is and how this might go down.

I mean, John is one of the leading lights in our partnership. He’s a brainiac, he’s a former attorney in the Solicitor General’s office in Washington, DC, as many of you know, that’s the office that has the responsibility of representing the United States government before the United States Supreme Court.

The best of the best is going to the Solicitor General’s office. John was also formerly the United States Attorney for, John, is it the Western District of Texas?

JOHN BASH: Yeah, Western District, which is Austin, San Antonio and El Paso.

JOHN QUINN: Yeah, so John’s based there in our Austin office, does a lot of appellate work, but is one of the real assets our firm has. So John, I know that, you know, we have a team at our firm that’s looking at issues and giving advice regarding this California billionaire tax proposition. Can you just begin by sort of describing it in broad outlines?

What is this proposition, and what is the process that’s by which this might be adopted?

JOHN BASH: Well, there’s a process to get it on the ballot, which can be challenged, but then as I understand it, California voters would have the opportunity to enact this provision, which would be an amendment to the California constitution. And there were two different versions of this. There was an earlier version, but I’ll talk about the most recent version of the provision.

Essentially, it says, if you are somebody who was a resident of California as of January 1st. 2026 and as of December 31st, 2026, your net worth is a billion dollars or more than, you are subject to this tax, which is essentially 5% of your wealth. And I should say it also applies to certain trusts, which can be important for some people who have a lot of wealth in a trust.

There are some exclusions. For example, real estate is excluded. Tangible personal property held outside of California for at least 270 days is excluded. And there’s some exclusions for certain amounts in retirement plans, but generally it covers all tangible and intangible property. And of course the intangible properties where a lot of the analysis and concern is gonna be because that could include people’s ownership of their businesses, and a lot of things that cannot easily be liquidated to pay a tax.

So, well let me leave the introduction there, but that’s the kind of the general outline of the tax.

JOHN QUINN: On the face of it, this seems to co present all kinds of problems you’re talking about. Would you have to value illiquid assets? You know, intangible assets? Like suppose you’re owner of a patent, suppose you own art, suppose I mean, if it’s public stock, that’s easy to value, but there’s so many things that it would be hard to value.

JOHN BASH: Well, especially in California, there’s a lot of people who have private companies who have startups that have giant valuations at this point. But you’re right that there’s gonna have to be a process to value those. But even if you can value them, there’s gonna be, have to be a process for how to pay the tax.

And a lot of those people may not be very liquid. And so it’s not clear how they could pay the tax, whether the government should take some ownership interest in their companies, which raises all sorts of concerns, obviously, or they’d have to divest from their companies. So, practically, it raises a lot of concerns.

And you know, one of the issues that will undoubtedly play out in any challenge of the tax is how novel it is. I mean, there’s not an American tradition of wealth taxes of this sort. There’s property taxes on real property or something, but there’s not this tradition of attacks on all wealth, no matter how liquid it is.

JOHN QUINN: Has there ever, to your knowledge, has there ever been one in any state?

JOHN BASH: Not to my knowledge. I mean, I haven’t done a comprehensive look, but nothing like this. And then you add to that, that it’s targeting an extremely small group of people, and that it’s pretty high. I mean, 5% of their wealth is a very high number. S it raises policy concerns, it raises practical concerns.

And it’s, of course, at the end of the day, gonna raise legal concerns if it is enacted.

JOHN QUINN: What’s the estimate of how many people would be affected by this? Have you seen any numbers?

JOHN BASH: I haven’t seen those, and I think that’s in flux a little bit. I think it’s a few hundred maybe, but don’t quote me on that. But it’s in flux because as you know, I think you alluded to in your intro, a lot, it’s been reported that a lot of people have left the state in order to avoid application of the tax, now the original proposal would’ve hit anybody who was a resident as of 2025.

That was amended, so now it’s 2026, and I think there’s pretty widespread reporting that people have left the state, you know, prior to January 1st, 2026, presumably to avoid the tax, which I saw somebody quip, I don’t know, on social media or maybe it was in an article that this is the first tax to have actually reduced tax revenue in the state before it’s enacted because so many taxpayers have actually left the state just to avoid the potential that it’s going to be enacted.

JOHN QUINN: I mean, the way that this is being presented, this California voter proposition process, I mean, that’s kind of unique to California, isn’t it? That if you can get a certain number of signatures and you’ll tell us what the number is that you have to get, you can get essentially any proposition on the ballot to be voted up or down.

JOHN BASH: Yeah, well, you know, it’s not that unique. We’ve actually, I mean, I’ve litigated, you know, since I’ve been at Quinn Emanuel, these ballot proposition cases in Florida, the ones we litigated, related to the legalization of recreational marijuana as a matter of Florida law. And there it’s kind of similar.

You have to get a certain number of signatures based on a California constitutional, I mean, a Florida constitutional formula. And in Florida at least, you can immediately challenge the proposition in the Florida Supreme Court on grounds, like the summary for voters as misleading. So we’ve litigated those.

I don’t, you know, I don’t know how many states have exactly that process, but it’s not totally unheard of, it’s a form of direct democracy and, there is a process, it’s a little different in California. I believe the attorney general signs off on the ballot summary, as opposed to the State Supreme Court.

But there are provisions you have to comply with in terms of your signatures, and it’s possible people will challenge this on that basis, but that really turns on the particulars of the signature gathering process and whether all the requirements were complied with.

JOHN QUINN: Yeah. So I mean, do you know what is the percentage, how many signatures do they have to get? I’ve seen something like it’s an 800,000 number or something like that.

JOHN BASH: I thought it was something like 8% of the votes or something like that, but I actually, I don’t know off the top of my head how many are required.

JOHN QUINN: Right. Do you know what the background to this, the genesis of it as? I understand that there was a, there’s some union that has been advocating for this and is behind it.

JOHN BASH: Yeah, a union is behind it and you know, their OS sensible basis for it is that billionaires have lobbied for things like the Trump tax cuts that benefit them, but hurt California voters or ordinary people because of reduction in healthcare benefits and so forth. And so this is a means to take back some of that money that the, you know, the billionaires benefited from, of course.

That’s painting with a broad brush. Not every billionaire benefits in the same way from tax cuts. Not everybody lobbied for those tax cuts, and so that, you know, I think that’s a questionable basis on which to defend the policy behind this. But yeah, it’s motivated by a union, looking ostensibly to counteract some of, reduce taxes or deregulatory agenda at the federal level by doing something at the state level that takes back some revenue from people that they claim at least, got huge tax cuts from what happened at the federal level.

JOHN QUINN: I mean, do you have any sense about how the proponents of this proposition are doing in terms of collecting the required number of signatures.

JOHN BASH: I don’t, we’re not, yeah, I haven’t been monitoring that personally. I don’t know how close that is, it does seem like, you know, it doesn’t obviously have super widespread support, even among the left at least political actors in California. So, you know, I don’t know how that’s gonna play out.

You might have seen an Atlantic article a couple days ago that said basically there’s other ways to collect tax revenue from very high earners. This is not administrable. It may be unconstitutional. It’s probably not the ideal way to do it. So I think there’s pretty widespread concern about this proposal, especially on the admin front.

So yeah, good chance that I guess, doesn’t even either make the ballot or get enacted, in which case all the legal challenges will of course be moved.

JOHN QUINN: If they do collect, I mean, I assume there’s a date by which these signatures have to be collected.

JOHN BASH: Yeah. It has to be collected by a certain date to get on the ballot and so we’ll know, you know, I don’t have that date off the top of my head, but there is a date when it has to be on the ballot by certainly, and then it gets on the ballot and people can vote for it until November.

JOHN QUINN: So, John, I understand that the proposed proposition itself has some language in it about how it might be challenged.

JOHN BASH: That’s right. At least the most recent iteration of the proposal allows for a direct facial challenge. I’ll talk in a second about what that is in state court, it’s all facial challenges have to be filed within a certain amount of time. I think it’s 60 days. The Sacramento trial level court and then whatever that court has to consolidate proceedings at least for trial.

And then whatever happens there, you can take a direct appeal to the California Supreme Court and then of course the US Supreme Court if there are federal issues at that point. So, there is a direct means to do a facial challenge. Now, I think there may ultimately be questions once this materializes if it does, on what constitutes a facial challenge.

And if a taxpayer has some challenge that is somewhat unique to his or her situation, but is the kind of thing that could be resolved, reinforcement, whether that’s a facial challenge or not. But what that means is that no taxpayer is gonna have to at least to do some sorts of challenges.

No taxpayer is gonna have to pay the tax then seek a refund, which in most tax challenges, that is the ordinary process. You pay the tax and then seek the refund based on certain federal and state laws that require that procedure. They have built in a mechanism here to at least bring some challenges before paying the tax. And so if you, you know, if the tax is ultimately enacted by the voters, I imagine there will be an immediate challenge by at least somebody and maybe by a lot of people through this mechanism.

The other thing I should say is that the latest iteration allows the California legislature to amend it if there’s a two-thirds vote. So it makes it hard for the legislature to do it. This is of course a constitutional amendment, so it can affect, you know, the threshold for the legislature to change it.

But it establishes a two third threshold, and I don’t know if that’s built in to make it more politically palatable. You know, if all hell breaks loose, there is an escape hatch or whatever. But that was built in. The other thing that’s interesting in terms of the potential legal challenges is that the text of the amendment contemplates that it may be struck down, at least in part, and has all sorts of severability type provisions built into it.

So in a basic severability clause, then a clause that essentially tells courts, save as much of this as you feasibly can, if you find some part of it is unconstitutional, so it, you know, the people who drafted this undoubtedly are well counseled and understand that this is gonna have constitutional vulnerabilities and are trying to build in these safety valves that at least some of it could survive if it’s deemed unconstitutional, at least in part.

JOHN QUINN: I understand there’s actually a marketplace for getting signatures on ballots, that there’s competing propositions out there and that people are being paid $5, $10, $15, $20 for signatures on propositions, do you know anything about that?

JOHN BASH: I have not heard of that. I imagine I, you know, I haven’t studied the issue, but I imagine paying people for signatures is not allowed and could even implicate stronger forms of liability. So I don’t know about that. You know, I think there are often ballot initiative proponents throughout the states, who pay people to collect signatures, as workers to go around and try to get signatures.

I think that’s a, that stands on a different footing, but if anyone’s paying people for signatures, I can’t imagine that’s allowed, under California law.

JOHN QUINN: So. It may be people being paid for collecting,

JOHN BASH: Yeah. Yeah. And I don’t know all the rules of, don’t listen to me, I don’t know all the rules around that in California, but that seems at least plausibly lawful. Whereas, I don’t think you’d ever pay people for signatures.

JOHN QUINN: Alright. Let’s suppose the required number of signatures are collected. They’re collected by the deadline, whatever that is in advance of the printing of the ballot. And those signatures survive whatever scrutiny and checking that the state does. Then it’ll, it would be on the ballot in November and we would know the next day whether or not it passed.

JOHN BASH: I think so, you know, there’s always, challenges if it’s close. If I’m remembering correctly, I think it only needs 50%, which is different than Florida, for example, which needs 60% to pass. So, these things can be enacted and then their law and people will know. Now, of course, the problem if you’re somebody who’s subjected to this tax, is that if you haven’t left the state already, you know, you’re subject to it on its face by the fact that you were there as of January 1st, 2026.

And it will hit your net worth as of December 31st, 2026. So at that point, it’s gonna be too late to leave to at least, you know, get out of the facial application of the tax. Putting aside whether you have some constitutional argument, to say that it’s unconstitutional. And of course the tax is an amendment to the state constitution.

So that would at least arguably take away state constitutional arguments ’cause it’s actually amending the state constitution.

JOHN QUINN: I mean, I hadn’t really appreciated that, that this billionaire tax is being presented in the form of an amendment to the California constitution.

JOHN BASH: That’s right and that’s why they can say that a two-thirds vote is required to amend for the legislature to depart from the tax or to amend it in some way. So yeah, that’s pretty significant. Now, you know, presumably there could be some kind of constitutional challenge to the process in which it’s enacted, but probably most of the action will be on federal law grounds.

JOHN QUINN: I mean, this is surprising to me because I understand that this is a one-time tax, people who were billionaires as of January 1st, 2026. So I mean, I’m not getting the logic of amending the Constitution for a one-time tax.

JOHN BASH: Yeah, I mean the logic I think is, you know, taking it face value, what the proponents have said, it’s that these billionaires supposedly got a huge tax break at the federal level that is put into programs to help working class people, and they’re trying to get that back. So that’s the logic.

But you know, I think your intuition is gonna be shared by a lot of folks and maybe by some judges. That this really does feel like just confiscating a certain amount of wealth of a very small group of people, as opposed to what taxes traditionally seem like. So, you know that that’s gonna be a theme, no doubt in any litigation brought against this.

JOHN QUINN: John, you said that the amendment itself contemplates, that it would be challenged and sets forth at least, a procedure for facial challenges. So if, let’s say it’s adopted and the next day after it’s adopted, there’s a challenge filed, would it auto, would the effectiveness of the tax automatically be stayed or would an injunction have to be sought, or we just don’t know the answer to that.

JOHN BASH: Yeah, I don’t think you need to do any of that because the actual challenge provision says it will not be enforced while the challenge is pending, that you can bring, you can bring the challenge before it’s enforced.

It also recommends that, and first of all, bear in mind that the day after it’s enacted is not gonna be when the tax is collected and it actually asks courts to do their best to get the challenge over with by, I think it’s April, 2027 or something like that.

So it’s, you know, it asks the court to expedite it. It’s, I think, I think the idea of it is, we know there’s gonna be challenges. Get them over with as quickly as possible, yay or nay, and then allow the tax to be applied if it survives a constitutional challenge once those are done. So I, you know, I think there’s some thoughtfulness put into setting up a constitutional, setting up a process to get constitutional certainty on it.

Now look, if it goes up to the US Supreme Court, which is a possibility here, they’re not gonna, you know, rush and do it in a month, most likely they’re probably just gonna do it on their ordinary schedule, not like the emergency docket. So there, you know, there may end up being litigation, overstays and so forth.

But I imagine that, and I never say never, but I imagine California officials are gonna look to try to do it in an orderly way and are not going to enforce attacks that may require people to liquidate assets, sell off businesses, while that issue is pending in the US Supreme Court, if that’s where it is, that wouldn’t be taken too well by the US Supreme Court.

It wouldn’t make administrative sense. So I imagine whatever happens there will be an orderly if speedy litigation of its constitutionality, and then whatever the courts decide, the state government will go from there.

JOHN QUINN: So, John, is that about it that we can talk about? Is there anything else?

JOHN BASH: Yeah. Yeah, I think so. Yeah. I mean, probably don’t want to get into the substance, although we could probably spend an hour on that.

JOHN QUINN: Yeah, we already told the folks we’re not gonna do that.

So we’ve been talking to John Bash about the California billionaires’ tax. You know, sometimes people say that if there’s anything the state of California can do to make the state and the business environment hostile to business, they’ll find a way to do it.

And many people think the enactment of these billionaire taxes would be just another example of this. This is John Quinn, and this has been Law, disrupted.

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Published: May 1 2026