(38) - Copy.webp)
January 08, 2026
California is synonymous with innovation
and technology, but it's also regarded as one of the most complicated tax
systems in the United States of America. Just when you think you have a handle
on your filings, there comes along another proposal to set the waters churning:
The 2026 Billionaire Tax Act.
While you may not be a billionaire
yourself, these big companies often have a "trickle-down" effect on
the state's economy, public services, and future tax policies. Here’s a simple
breakdown of the 2026 Billionaire
Tax Act.
If approved by voters in November 2026, the measure would establish a first-of-its-kind "Wealth Tax." Different from your run-of-the-mill income tax that looks at what you pulled in this year, this tax looks at the total value of what you already own.
It is an "excise tax" of 5% on a person's global net worth.
It has been termed a "one-time" levy aimed at stabilizing the state's
healthcare budget through 2030.
The tax kicks in only once a resident's net worth reaches $1 billion.
This represents targeting the "top of the top," roughly 200 in the
whole state. However, for individuals (other than trusts) with a net worth
between $1 billion and $1.1 billion, the rate is slightly lower. For every $2
million in wealth, someone's tax rate drops by 0.1 percentage points when their
wealth falls below $1.1 billion.
This is the critical date. It targets anyone who is a California resident on
January 1, 2026.
If you are a resident on that morning, the tax obligation is
"triggered," even if you move away later that year.
Because most billionaires do not have billions in cash sitting in a
checking account, the state allows them to spread the payment over five years,
though ending in 2031, they may have to pay a small fee to use this instalment
plan.
It is intended to capture the "paper
wealth" that is usually not taxed.
Inclusion: Stocks (including those not yet sold), ownership interests in
businesses, venture capital or private equity holdings, high-value art
collections, and intellectual property such as patents or copyrights. For
assets such as art, non-publicly traded financial instruments, intellectual
property, and vehicles, a combined value of up to $5 million may be excluded.
Exclusion: All interests in real property (held directly or via revocable trust)
are excluded. Other exclusions include pensions, qualified retirement accounts,
and tangible property located outside California for at least 270 days during
2026.
To illustrate how this works in the
"real world," let's consider a fictional technology founder named
"Jordan."
Jordan's Portfolio:
Company Stock: $1.5 billion Unsold
Private Jet &
Yacht: $100 million
Art Collection: $50 million
Primary Residence
in SF: $30 million (Exempt)
401(k) / Pension: $5 million - Excluded
Jordan's "taxable wealth" for
this act would be roughly $1.65 billion. At a 5% rate, Jordan would owe the
state $82.5 million.
That sounds like a staggering number, until
one realises Jordan does not have to sell his house to meet that obligation. He
can pay roughly $16.5 million a year for five years to satisfy the requirement.
California traditionally hasn't taxed
"wealth"-the total value of what you own directly. Instead, it relies
heavily on Personal Income Tax. This is the system most of us are familiar
with: if you earn a high salary or sell stocks for a profit, you pay a
percentage of that "realized" gain to the state.
We already have a 1% surcharge on incomes
over $1 million that funds vital mental health services. But this only catches
money that is actually flowing into a bank account.
The challenge the state faces is that a
billionaire's fortune doesn't behave like a typical paycheck. If a tech
founder's net worth grows by $10 billion because their company's stock value
went up, they don't actually owe a penny in taxes on that growth until they
decide to sell. Precisely this "hidden" growth is targeted by the new
billionaire Tax Act.
The driving force behind this initiative,
officially known as Initiative 25-0024, is a
looming financial crossroads for the state. Proponents, including major
healthcare and labour unions such as SEIU-UHW, argue that shifting federal
priorities have left California's safety net in a fragile state. Without a new
way to bring in revenue, they warn of a "healthcare collapse"-a
scenario where your local community hospitals could close their doors,
insurance premiums could spike for every family, and tens of thousands of
essential medical roles could be eliminated.
Besides the threat to our hospitals,
proponents are pointing out a deep chasm in the way we frame
"fairness." A teacher or firefighter pays taxes on practically every
dollar in their paycheck, while the ultra-wealthy often expand their fortunes
through investments and unrealized gains that may go years without being taxed.
This measure closes that gap once and for
all by finally treating "unrealized" wealth in the form of massive
stock holdings and hyper-luxury assets as a taxable resource. The aim is to tap
the immense fortunes built right here in California to provide an emergency
boost that keeps neighbourhood clinics running, secures fully supported local
K-14 classrooms, and keeps food assistance programs on the table for families
who need them most.
You're probably thinking, "I'm not a
billionaire, so why should this affect me?" Well, you won't be seeing that
5% charge on your bank account, but here are some ways this could apply to your
life in California:
Service Funding: 90% of revenue goes toward health care, which could mean more stable
community clinics and better-funded public health programs in your neighbourhood.
Economic Shifts: Critics fear that this kind of tax would drive California's largest
taxpayers to other states. Since the top 1 percent already pay 40 percent of
state income tax, if they were gone, it could leave budget holes others might
have to fill over time.
Legal Precedent: This is a "Wealth Tax," not an "Income Tax." If
it's successful and survives legal challenges, it could set a bad precedent,
leading to similar taxes on lower levels of wealth sometime later.
Water & Shark works with clients to
translate legislative developments into clear strategic insight. Our role is
simple and uncompromising: to protect, preserve, and help prosper your global
wealth and global structures. By aligning tax planning, wealth structuring, and
compliance with a forward-looking assessment of policy risk, we help ensure
that decisions made today remain sound in tomorrow's regulatory landscape. The
advantage lies with those who anticipate change rather than adjust to it after
the fact during periods of transition.
Navigating this landscape requires early
evaluation and planning. Understanding how assets are classified, where
exposure may occur, and how obligations could be funded without disrupting
long-term goals is paramount. The focus will not be on reacting after the rules
are set, but in building robust structures that can adapt as the regulatory
expectations themselves change.
1. Is the
2026 Billionaire Tax really “one-time”?
No. Once unrealised wealth is taxed, the
precedent is permanent, regardless of how it’s branded.
2. Can I
avoid the tax by moving out of California later in 2026?
No. California residency on January 1,
2026, alone triggers full liability.
3. Which
assets are actually exposed under this tax?
Unsold equity, private investments, IP, and
luxury assets—i.e. paper wealth, not cash flow.
4. How is
this different from existing millionaire taxes?
Unlike income tax, this applies even when
no cash is earned. It is based purely on
what you own.
5. Why
should people who aren’t billionaires care about this?
Because tax frameworks piloted at the top historically cascade downward.
