Author: yd4jx

Proponents of a California wealth tax ballot initiative insist that the proposed wealth taxA wealth tax is imposed on an individual’s net wealth, or the market value of their total owned assets minus liabilities. A wealth tax can be narrowly or widely defined, and depending on the definition of wealth, the base for a wealth tax can vary. is temporary: a one-time 5 percent tax that can be paid upfront or over five years with deferral charges. Others are skeptical that the wealth taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. would be allowed to expire. Crucially, many billionaires who would be subject to the tax seem to think that it will become a long-term fixture of California’s tax code if approved by the voters this fall, which could influence decisions to depart.

There’s good reason to believe that opponents’ policy fears are warranted—that the rationales for the wealth tax are largely inconsistent with a temporary tax, and that if the state imposes a one-time wealth tax, there will be considerable pressure to extend it or make it permanent. Concerns that the ballot measure enables the legislature to extend the tax without returning to the voters, however, appear to have less warrant.

The ostensive purpose of the 2026 Billionaire Tax Act is to raise revenue to offset reductions in healthcare expenditures under H.R. 1. Proponents wish not only to cover the costs of the higher state funding share created by the federal law, but also to expand coverage at the state level to cover those no longer eligible at the federal level. Whether the new federal policies will remain in place is an open question, but there is certainly no guarantee that California’s costs will revert to lower levels in the coming years. Proponents have proposed a temporary tax to fund new spending that could easily become recurring.

But efforts to impose a wealth tax in California far predate H.R. 1. The same tax law professors and economists behind this year’s wealth tax ballot measure were also the drafters and champions of California legislation in 2021 and 2023 that would have created permanent wealth taxes. These bills were part of a coordinated effort on wealth taxes and other taxes on high-net-worth households, including wealth tax proposals in Hawaii and Washington. Clearly, proponents felt a wealth tax was worth pursuing with or without H.R. 1.

The California measure’s drafters have co-written journal articles on additional (permanent) state wealth tax designs, and most recently, the same people who drafted California’s supposedly temporary wealth tax have also been involved with Sen. Bernie Sanders’ newly proposed permanent wealth tax at the federal level. A one-time tax might have been a political concession, but there is no question that the measure’s proponents believe in wealth taxes as a permanent policy.

The tax is, moreover, designed as an excise taxAn excise tax is a tax imposed on a specific good or activity. Excise taxes are commonly levied on cigarettes, alcoholic beverages, soda, gasoline, insurance premiums, amusement activities, and betting, and typically make up a relatively small and volatile portion of state and local and, to a lesser extent, federal tax collections. on “the activity of sustaining excessive accumulations of wealth” and is a prime example of a growing emphasis in some quarters on the erosion of wealth as a goal, rather than merely a consequence, of progressive taxA progressive tax is one where the average tax burden increases with income. High-income families pay a disproportionate share of the tax burden, while low- and middle-income taxpayers shoulder a relatively small tax burden. policy. If proponents regard “excessive accumulations of wealth” as a problem to be addressed through public policy, then the case for wealth taxation will not have changed one or five years from now.

Temporary taxes have a way of sticking around. California’s current top rates were first adopted in 2012 as a seven-year surcharge. Voters extended the income tax increases in 2016 and will decide this year whether to make the higher rates permanent. But at least this involved going back to the voters.

New York’s millionaire tax, adopted in 2009 as a two-year expedient to get through the Great RecessionA recession is a significant and sustained decline in the economy. Typically, a recession lasts longer than six months, but recovery from a recession can take a few years., has been extended multiple times, with the current budget proposing an extension through 2032. Since 2009, temporary individual and corporate income taxA corporate income tax (CIT) is levied by federal and state governments on business profits. Many companies are not subject to the CIT because they are taxed as pass-through businesses, with income reportable under the individual income tax. increases in Connecticut, Delaware, Illinois, New Jersey, and Wisconsin have also become permanent, with slight adjustments. Not all temporary increases become permanent, but states are often loath to give up revenue sources they’ve acquired, even if the original reason for the tax increase no longer exists.

The economic consequences of the initial, one-time wealth tax, moreover, could make further wealth taxation more likely: by driving some billionaires, potentially along with their investments and business interests, out of state, the California wealth tax will shrink the existing tax baseThe tax base is the total amount of income, property, assets, consumption, transactions, or other economic activity subject to taxation by a tax authority. A narrow tax base is non-neutral and inefficient. A broad tax base reduces tax administration costs and allows more revenue to be raised at lower rates.. Underperformance of other taxes, particularly the individual income taxAn individual income tax (or personal income tax) is levied on the wages, salaries, investments, or other forms of income an individual or household earns. The U.S. imposes a progressive income tax where rates increase with income. The Federal Income Tax was established in 1913 with the ratification of the 16th Amendment. Though barely 100 years old, individual income taxes are the largest source, could easily become the rationale for future wealth taxation.

The incentive, therefore, is for billionaires to leave now, and for future founders to create their startups elsewhere. No one wants to be the one holding the bag if the first exodus increases the likelihood of future wealth taxes. Despite drafters’ efforts to lock in billionaires by using a January 1, 2026, residency date, there are good reasons to believe that this date will not survive legal challenges, and that taxpayers could avoid some or all liability by moving later this year.

Some critics of the proposed wealth tax worry that it contains the seeds of its own extension. However, it would take an unusually creative interpretation of its language for this to be the case.

California’s constitution currently caps the taxation of intangible personal property at 0.4 percent, which would, by definition, preclude a wealth tax at a rate above 0.4 percent absent a constitutional amendment. Other existing constitutional provisions, as well as the language of ballot initiatives, which have quasi-constitutional status (the legislature cannot amend or repeal them on its own), also create impediments to a wealth tax. Previous legislative proposals have been paired with such constitutional amendments, which must be ratified by the voters. Some fear that this year’s ballot initiative, although supposedly creating a one-time tax, will permanently lift the constitutional barriers that restrain the legislature’s authority to adopt a future wealth tax on its own.

The initiative, however, does not repeal the relevant constitutional provisions. It instead allows the 2026 California Billionaire Tax Act to supersede them. The new constitutional language appears to stipulate that (1) only this Act can supersede the 0.4 percent cap and other limitations, and (2) this Act is a one-time tax. While the legislature has the authority to amend the Act in ways that further its purposes, any amendment that turned it into a permanent tax seems facially inconsistent with its description (including in the constitutional language) as a one-time tax.

This is not to rule out the possibility entirely. Perhaps courts would bless creative language allowing the tax to be imposed in future years on those who later become billionaires, on the theory that it is imposed one time on each taxpayer. Perhaps they would regard a retroactive rate increase spread out over additional years as still being one-time. Perhaps they would conclude that the specific supersession of the cap stands for a general principle that it is not inviolable. All these interpretations seem wildly unlikely, at odds with the text of the initiative and an affront to due process, but states have tried wilder things, and judicial deference to legislative prerogative has sometimes prevailed. These concerns cannot be dismissed out of hand, but they do seem highly improbable.

Still, even if the legislature cannot extend the tax without returning to the voters, it is easy to imagine future budget shortfalls—exacerbated by the economic consequences of the wealth tax—prompting lawmakers to seek authorization for a permanent wealth tax. The apparatus for collecting and administering the tax would already be in place. Voters should consider the possibility that a temporary wealth tax would pave the way for a permanent one. It’s clear that the tax’s targets are already taking that possibility seriously.

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This legislative session, Kansas policymakers remain focused on property taxA property tax is primarily levied on immovable property like land and buildings, as well as on tangible personal property that is movable, like vehicles and equipment. Property taxes are the single largest source of state and local revenue in the U.S. and help fund schools, roads, police, and other services. reform and relief, with the Senate and House passing an assessment limit and a levy limit, respectively, in late February.  

SCR 1616 would limit increases in the assessed value of all classes of real property and residential mobile homes to no more than 3 percent per year. HB 2745 would create a 3 percent property taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. levy limit that would restrict the growth in property tax revenues that can be raised by local taxing subdivisions other than school districts.

While well-intentioned, the assessment limit in SCR 1616 would create wide gaps between assessed value and market value, distorting the real estate market and disadvantaging those purchasing newer homes (and other newer real estate). A levy limit is a more neutral and structurally sound solution, but the House-passed version of HB 2745 is more permissive than the levy limits in many states, especially given its exemption for schools and its reliance on a protest petition.

SCR 1616’s Assessment Limit Would Distort Real Estate Market and Disadvantage Those Purchasing Newer Properties

The Senate-passed resolution, SCR 1616, would amend the Kansas constitution to impose a 3 percent limit on the amount by which the assessed value of a parcel of real property or a mobile home used for residential purposes can increase from year to year. The assessment limit would not apply when the property includes new construction or improvements, nor in other less common circumstances.

However, the limit would remain in place even when the property changes ownership (unless the legislature creates exceptions to this policy). This provision is highly unusual, as it means the reduced assessment would run with the property, rather than with the owner (which is more typically seen in the portability provisions in some states’ assessment limits). In states without portability provisions, changes in property ownership trigger a new, often higher, assessment, but under SCR 1616, a homebuyer purchasing an existing home would benefit from a reduced assessment that would not reset upon ownership transfer. However, a homebuyer purchasing a newly built home would pay full freight.

This favorable assessment of older homes (and other properties, including commercial properties) would increase their market value, yielding higher sales prices. These higher sales prices would benefit incumbent property owners but would create an additional affordability hurdle for prospective first-time homebuyers. At the same time, preferential tax treatment of previously constructed properties would make new construction less desirable, thereby discouraging the development of new housing stock and new commercial properties.

Over time, limiting assessed values in this manner would substantially distort the real estate market by creating an incentive for taxpayers to purchase older properties whose assessed values have been artificially capped for many years or decades. SCR 1616 would also create an incentive for owners to avoid renovations to avoid triggering a reassessment. This would discourage some property owners from making value-enhancing investments they would otherwise pursue, and deferred renovations could even lead to negative health or safety outcomes for owners or tenants.

It is also worth noting that if this constitutional amendment is approved by voters, the legislature would have the authority to adopt a lower assessment limit with a simple statutory change. For example, policymakers could restrict valuation increases to 1 percent—or even cap assessments at their current levels—with a simple act of the legislature, further exacerbating market distortions.

In the first year SCR 1616 is in effect (tax year 2027), the assessment limit would prohibit taxable assessed value increases of more than 3 percent (or a lesser percentage as provided by law), compared to the property’s tax year 2022 assessed value. As a result, the assessed value of many properties would be substantially reduced in the first year they are assessed under this provision, which would lead to property tax liabilities being reduced if mill levies are held constant. Notably, however, there is nothing in SCR 1616 to prevent local taxing authorities from increasing mill levies, countering the effects of adopting an assessment limit in the first place. Furthermore, over time, higher mill levies would disproportionately burden those whose assessments are closer to market value (those with newer properties).

While well-intentioned, an assessment limit is not an ideal solution for Kansas, even if paired with a levy limit. Over time, an assessment limit like the one in SCR 1616 would create wide gaps between a property’s assessed value and its market value, while creating market distortions and shifting property tax burdens in nonneutral ways.

Instead, policymakers should keep the focus on how much revenue is actually needed and desired to fund government services and limit overall property tax collections growth with a well-structured levy limit that avoids unnecessary exemptions.

HB 2745’s Levy Limit Is Preferable but May Prove Too Permissive

HB 2745 would create a new statewide property tax levy limit that would replace the current “revenue neutral” policy enacted under Kansas’ 2021 “Truth in Taxation” law, while retaining certain modified public notice and public hearing requirements. Under HB 2745, local political subdivisions (except school districts) would be subject to a potential protest petition if they adopt a resolution that raises property tax collections by more than 3 percent above the previous year’s collections. Notably, certain property tax increases would not be constrained by the cap, including those attributable to new construction, renovations, or improvements; the expiration of property tax abatements or tax increment financing (TIF) districts; or property tax increases used to repay bonds, state infrastructure loans, or interest payments on obligations entered into before July 1, 2026.

When a budget is adopted exceeding the limit, HB 2745 would give voters 30 days to file a protest petition. Under the House-passed version of the bill, a protest petition would be successful if 5 percent or more of the qualified electors of votes cast for Kansas Secretary of State sign the petition. In the event of a successful protest petition, the governing authorities of that jurisdiction would be required to adopt an alternative budget, within seven days, that keeps property tax collections within the limit’s constraints. If the protest petition is unsuccessful, the budget exceeding the levy limit would be permitted to take effect.

From a property tax collections standpoint, HB 2745 is more permissive than the current “revenue neutral” Truth in Taxation policy that, by default, holds collections constant year-over-year. However, the mechanism by which undesired property tax increases could be prevented is stronger, as a successful protest petition would nullify increases over the limit, while Truth in Taxation relies on procedural steps and the pressure of public opinion alone to prevent property tax increases.

HB 2745 would therefore give voters a stronger tool in their toolkits to overturn property tax increases they disagree with, but it would simultaneously give local taxing jurisdictions more flexibility to increase property taxes year-over-year, by default, than they have under current law. Therefore, while HB 2745 could have a stronger effect on constraining property tax revenue growth in jurisdictions that have increased property taxes despite Truth in Taxation, the policy may have a weaker effect on constraining collections growth in those jurisdictions that had previously held property tax collections constant.

It is also worth noting that a protest petition puts the onus on taxpayers to proactively act to prevent undesired property tax increases. Under HB 2745, a budget exceeding the limit would become law by default unless a protest petition is successful, whereas under most levy limits, a budget exceeding the limit by default cannot become law unless and until it is approved by voters at the ballot.

Additionally, exempting school districts from the levy limit would create a substantial carveout that would limit the tax relief that would be realized under this policy change, since a large portion of property taxes in Kansas are used to finance schools. Under current law, school districts are constrained by Truth in Taxation laws, but under HB 2745, they would no longer face the same constraints. This could result in many Kansans facing sharper property tax increases overall, even if HB 2745 does successfully limit the county, city, and special district portions of their property tax bills.  

Overall, levy limits are a structurally sound way to limit property tax increases, as they focus on the root of the problem: local spending increases. Under a levy limit, when assessed values rise across a local political subdivision, taxing authorities by default must adjust the mill levy rate downward to keep overall collections from exceeding the specified limit. Importantly, however, property tax liability remains tied to a parcel’s assessed value (which for most classes of property is a percentage of market value), and property tax increases experienced by any one parcel will be limited by virtue of overall collections being constrained by the cap.

As such, levy limits are the simplest, most neutral, and most structurally sound mechanism for achieving property tax reform and relief, but they only work effectively if there are few exceptions and if the mechanism by which voters can disapprove of undesired tax increases is sufficiently strong.

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