Various blue states are facing towering budget deficits as federal pandemic payments end and expenditures rise.
The result is a widening gap between the two parties on tax policies as Democratic leaders seek to avoid massive budget cuts in favor of tax increases. Two of the most economically moronic measures can be found in California and Illinois where leaders could be pushing high-tax residents out of their respective states.
In California, Gov. Gavin Newsom is seeking a billionaire tax that would target roughly 180 individuals who are expected to remain in the state, like some voluntary canned hunt. In Chicago, Mayor Brandon Johnson is facing the same exodus of businesses as California. His solution? A head tax on the very large corporations is needed for the city to survive. Even the far-left governor, J.B. Pritzker, is opposing the move as economically suicidal. However, groups like the teachers’ unions are pushing for this and other new taxes to support, among other things, a bloated pension plan for its members.
The Great Sucking Sound
California has long been bleeding tax revenue as residents move to states like Florida and Texas. Corporations have followed suit with major companies either moving out of the state or closing stores in cities like San Francisco. Despite the towering deficit, Newsom and the Democratic Party continue to spend wildly on a boondoggle bullet train and to engage in last-minute redistricting to gerrymander the state further. They have also moved to extend Medi-Cal to illegal immigrants at a massive cost to the budget. Newsom is also pushing ahead with a Commission to pay reparations to black citizens.
With a governor campaigning virtually full-time for president, spending is expected to continue apace until 2028. So, where can a presidential aspirant find money without losing votes? The obvious choice is with the wealthiest citizens.
California unions and liberal academics are demanding a new tax on those billionaires who have not had the sense to leave the state.
The “2026 Billionaire Tax Act” would hit roughly 180 citizens with a new tax demand to plug holes in the state’s health care system. While denied by Democrats in Congress, the “One Big Beautiful Bill” cut off funds used for illegal immigrants ‘ health care, which produced a shortfall for California. That is part of the money Democrats want restored, or they will keep the government closed. Another 10% of the funds would be used to support public K-12 education.
Two of the academics pushing this measure are UC Berkeley economics professor Emmanuel Saez, law professor Brian Galle, and Stanford law professor Darien Shanske. They insist that there is history to support the success of such wealth taxes in a few cities and states like Washington. Advocates are counting on the unions to get the initiative on the ballot, and they know it is always popular to soak the rich. Teachers’ unions have also demanded wealth taxes in states like Massachusetts.
Wealth taxes are in vogue among Democrats. In every election, Democrats insist that the wealthiest are not paying their fair share of taxes, even though the top 1 percent pays more taxes than the bottom 90 percent combined. It is an ageless mantra. Figures like Sen. Elizabeth Warren (D., Mass) sought to ride the wealth tax into the White House, unleashing what she thought would be a class warfare over tax policy. She thrilled many on the left by declaring that she was coming after “the diamonds, the yachts, and the Rembrandts too.” Then, New York City Mayor Bill de Blasio, another Democratic presidential contender at the time, also promised that “we will tax the hell out of the wealthy.”
In the California effort, fewer than 200 Californians would bear the new tax burden —the wealthiest 0.0005% of residents. They will face a 5% tax on everything they own.
For years, some of us have opposed wealth taxes on constitutional grounds in the federal system and practical grounds in the state systems. Practically, you must create a new bureaucracy for the estimation of wealth in everything from art to boats to real estate. Under the plan, the Franchise Tax Board would require all California residents to declare their total net worth, including interests in private companies, real estate, art, and intellectual property. The individuals would then have to pay the debt in full or spread over five years with interest, with steep penalties for underreporting.
They hope to raise $100 billion in a flash and then divvy it up among their favorite causes. Of course, the problem is that, while some assets like homes are not mobile, the owners are. California expects these individuals to sit through a campaign where they are treated as the fatted calves for the slaughter, and then sell off five percent of their property for the privilege of staying. There is an obvious alternative that billionaires like Elon Musk have already taken: they can get the heck out of California. Many have already done so. Indeed, California moved to force those leaving to pay a tax.
In the meantime, there is no reason to believe that, once legislators can tap into wealth taxes, they will stop at billionaires as they move the threshold wealth line down for greater revenue streams.
These measures seem to me as highly dubious and likely to make things much worse. I will admit that Milton Friedman ruined me during my college years at the University of Chicago. However, California is already one of the highest tax states in the union. It is experiencing massive homelessness, crime, and other problems. At the same time, it is one of the most expensive places to live or have a business. In the mix of these elements, it wants to tell the highest earners now that they will be treated as basic digestives for Democratic policies. It will likely not only cause many to leave but will discourage others from coming with their income and businesses. Could you imagine a billionaire moving to the state to arrive just in time to be clipped for five percent of their wealth?
Rather than address runaway spending and poor management, Democrats and unions are treating the wealthy as static chumps who will not have the sense or desire to leave. It will be like a canned hunt with the cage door open.
Keep in mind that these are people who have spent their lives making money and optimizing conditions to make more money. The advocates are counting on billionaires just loving the state so much that they will stay at virtually any price. We will see.
As I discuss in my forthcoming book, Rage and the Republic: The Unfinished Story of the American Revolution, there is a common myth that the top five percent of this country do not “pay their fair share.” However, putting that debate aside, the question is whether it will produce more revenue than it costs the state in the long run. As these politicians campaign on clipping the “fat cats” who are not paying their fair share, many are likely to follow Musk with their money and their minions.
Head Hunters with a Dwindling Game Population
In my home city of Chicago, the economic conditions are becoming even more dire. Mayor Brandon Johnson has proven nothing short of a disaster as the city has spent itself into a deep deficit. In the meantime, many businesses and residents are fleeing the crime and high taxes. Any first-year economics student would see this as a time to rebuild the economy by attracting new businesses and retaining existing businesses.
Not Brandon Johnson. The creation of the far-left Chicago Teachers’ Union (CTU) came as Johnson took office with gimmicky plans for city-supported stores and open sanctuary policies. When money ran out, he became increasingly desperate and inflammatory, often accusing critics of being racists. He has a $1 billion deficit and, rather than cut the budget, he has tried every possible measure to raise money, including a ridiculous bond that even liberals on the City Council said would send the city into a rat hole of debt.
Moreover, the Regional Transportation Authority, which oversees the Chicago Transit Authority, Metra, and Pace, is now expecting an almost $900 million shortfall by 2028. Again, the impulse is not to view the RTA budget and operations as unprofitable, but to raise fares and impose new taxes, including fees on DoorDash and delivery orders, higher tolls, and real estate transfer taxes.
However, even Pritzker thinks that Johnson and the unions are nuts on reintroducing a corporate “head tax.” Barely able to convince many companies to stay in the state, Chicago would actually make it more costly to hire Chicagoans with an additional $ 21-per-employee tax. Chicago previously tried a smaller $2 head tax, which was ended by Democrat former Mayor Rahm Emanuel because it was seen as discouraging businesses from coming to the city. Johnson thinks that an exponential increase will now make it work. It is like preventing the sinking of the Titanic by increasing the amount of seawater.
However, Johnson listens to the unions and particularly the teachers’ unions, and they want a slew of new taxes to support their bloated pension fund and other city programs. In addition, they want to impose a 5% levy on corporations with global payrolls exceeding $8 million, applied to all compensation paid to employees earning more than $200,000.
It would further suppress economic growth and increase the revenue deficits. At some point, the city will go the way of Detroit in an irreversible plunge toward insolvency.
Over the last decade, Chicago has lost one out of five businesses and currently ranks as a city with the highest commercial property tax in the nation. However, Johnson and the unions want to double down on more taxes, as if there were magical infusions of money with no consequences.
There is even a plan to increase Chicago’s “cloud tax” and a new 50-cent-per-user “social media amusement tax.”
The CTU is calling for a coercive campaign to force the remaining thriving corporations and institutions to pay more. In a publication titled “Chicago is NOT broke: millions on the table if wealthy pay their fair share,” the CTU called for Payment in Lieu of Taxes (PILOT), a program where “wealthy universities and private hospitals that currently pay no property taxes” would pay a lump sum payment in exchange. My alma mater, the University of Chicago, is an intellectual hub that brings in intellectuals, research, and students to the city. The CTU wants to hit it and hospitals with PILOT charges.
It also wants to hit landlords with new profit taxes and penalize vacant properties.
With the recent passing of my mother, I gave serious thought to buying her home and investing in its total restoration. It is a beautiful old home, but I could not imagine owning a property in Chicago despite my love for the city. It is simply not economically feasible. It was a hard decision. I would love to invest in the city of my birth. However, the mayor and the City Council seem hellbent on destroying this city. In the meantime, the state is also spending wildly. The result is that many of the people I grew up with have left the city, and most have closed their businesses.
With the rise of Democratic Socialists in California, Illinois, and New York, these economic policies are likely to spread only to major cities. I fear that the result will be disastrous for our great cities. There is a perverse incentive for some of these politicians. Wealthy Republicans and conservative residents are fleeing these states, leaving Democrats more solidly in control. However, they are cutting off the top income earners and job creators. With the cutting off of subsidies under the Trump Administration, they must either reduce spending or tax those remaining.
We have seen this before, and it is not pretty.
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