Tipsheet

You Can Never Leave: California Revisits Retroactive Taxes to Cover Massive Budget Woes

Amy Curtis
Amy Curtis  |  December 04, 2025 7:15 AM

Under Gavin Newsom's leadership, the state of California went from a $21.4 billion budget surplus in 2019 (the year he took office) to a $45 billion deficit in 2024. But rather than rein in the spending that's driving his state to bankruptcy, Newsom and California Democrats are revisiting the idea of a retroactive tax on billionaires who have already left the state.

Here's more from Turley:

Previously, the state moved to tax people who left the state. Now, the state is seeking a billionaire tax and making it retroactive. Thus, even if you were waiting to decide to leave, it is too late. You are being taxed for the prior year.

California Governor Gavin Newsom is pushing the retroactive billionaire tax targeting the roughly 220 billionaires residing in California in 2025. It signals not just desperation in the face of crippling debt and overspending but a recognition that California is chasing its highest earners out of the state.

The “2026 Billionaires Tax Act” would impose a one-time 5% tax on individual wealth exceeding $1 billion. While technically using 2026 wealth figures, it would apply to billionaires who resided in California in 2025. So you cannot hope to flee… at least with your wealth intact. It is a penalty for those who stayed too long hoping that rational minds would prevail in California.

Back in 2023, the state decided to impose a one and a half percent tax on billionaires who moved out of the state. This was, as Turley described, a "bait-and-switch" because the after two years, the tax would expand to include anyone with a "worldwide net worth" of $50 million.

California has the nation's highest tax burden to begin with. Despite that, its deficits continue to balloon and tax revenue continues to decline.

Of course, the state cannot constitutionally tax people for years they didn't live or earn money in the state. This violates the 14th Amendment and the Commerce Clause. The Supreme Court has also previously ruled that states cannot penalize residents who move away, this includes Shaffer v. Carter (1920), that said states can tax in-state income of non-residents, but not out-of-state earnings; Oklahoma Tax Commission v. Chickasaw Nation (1995) where the state cannot tax income with no connection to the state (in this case, on Indian reservations); Zobel v. Williams (1982); and Saenz v. Roe (1999) that said states cannot punish people for moving.

As it should be.

That much is painfully clear.

California has tried this repeatedly and keeps getting smacked down by the courts.

It is not remotely well-governed.