More States Want to Tax the Rich. Here's How.

SPEAKER_1 (0:00)

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Alex Ossola (0:16)

Hey, What's News listeners, it's Sunday, July 12th. I'm Alex Ossola for The Wall Street Journal. This is What's News Sunday, the show where we tackle the big questions about the biggest stories in the news. On the show this week, we're looking at efforts around the US to increase taxes on the wealthy.

There's a proposal in California to tax the state's billionaires, and the effort recently cleared a key hurdle, so it'll appear on the ballot in November. That's no guarantee it'll become law, but it's good news for the health care workers union that proposed it. In fact, they say it's necessary.

SPEAKER_3 (0:51)

This is a one-time emergency tax to address the collapse of our health care system in California and the loss of health care coverage for 3.5 million people.

Alex Ossola (1:00)

That was Dave Regan, the president of the service employees international union United Health Care Workers West, speaking recently on KCRA News.

But there are also lots of people who oppose the billionaire tax, even among people who support higher taxes in general. Billionaire venture capitalist Vinod Khosla recently discussed it in an interview with journal reporter Gunjan Banerjee. And though Khosla says he's in favor of higher taxes to support labor, he doesn't think this tax is the way to do it.

SPEAKER_4 (1:28)

I'd be happy to pay more taxes and have capital gains, which is mostly what I pay, be the same as ordinary income.

Alex Ossola (1:36)

But you have opposed the wealth tax on the table right now.

SPEAKER_4 (1:39)

That's a dumb idea. Not every tax is a good idea. It solves nothing.

Alex Ossola (1:44)

The California tax is one of a growing number of state efforts around the country to impose new taxes on America's wealthiest residents. I spoke about where those efforts stand and what they tell us about what could happen with California's billionaire tax, with WSJ Economics reporter Jeanne Whalen and Laura Nelson, Journal Enterprise reporter based in Los Angeles.

Laura, let's start with this California billionaire tax. What is the idea behind this and how would it actually work?

Laura Nelson (2:13)

So it is a first of its kind proposal in the US. Typically in America, we tax assets when they're sold. If you buy a stock and then sell it a couple of years later, you pay taxes on the gains that you make at the time of sale. But when you hold it, you typically don't have to pay much if anything. This tax in California would impose a one time 5% tax on the assets of individuals who have a net worth of at least a billion dollars. So that means for someone worth $10 billion, the tax would amount to a one time bill of about $500 million.

The health care union that's backing this tax has said that this revenue is vital because of cuts that have been made to Medicaid that were passed through Congress and signed into law last year by President Trump. And the union that's backing this tax estimates that California could lose about $100 billion in funding for MediCal, which is the state's Medicaid program, and that this revenue is the only thing that they could think of to backfill cuts of that size.

Alex Ossola (3:14)

But this is, as you said, a one-time tax. So what happens after that?

Laura Nelson (3:19)

The idea with the health care union is that this would buy them a little bit of breathing room to figure out how to fund these programs over the long term. And of course, during that time period, they are thinking there could be a change in which party controls Congress. If Democrats take control of the House or the Senate or both chambers or the presidency in 2028, there could be real changes to the way that the country approaches health care spending and funding from a federal level as opposed to at a state level. So this is kind of a stopgap.

Alex Ossola (3:47)

And where does the effort stand right now?

Laura Nelson (3:50)

The measure has qualified for the ballot. That means that California voters in November will have the chance to say yes or no to it, up or down. There's also two other measures that have qualified for the ballot as well that have been funded by a handful of people, including Google co-founder Sergey Brin. And those measures take aim at portions of the wealth tax. But we are headed into a very busy ballot measure season where there will be multiple billionaire tax related efforts all on the ballot at the same time for voters in November.