Mid-Year Movers May Avoid the California Wealth Tax
My New Paper on Legal Impediments to the Wealth Tax's January Residency Date
There’s a sense of befuddlement in a new paper from California wealth tax boosters Emmanuel Saez and Gabriel Zucman as they discuss the curious case of Mark Zuckerberg, who is reportedly in the process of moving out of California in response to the proposed wealth tax. They write that Zuckerberg is “extremely likely to be a California resident as of January 1, 2026” and thus fully subject to the tax regardless of what moves he makes this year. If you buy their argument, Zuckerberg’s costly move is completely pointless.
But people like Zuckerberg didn’t get where they are by making major decisions of this magnitude because no one on their team bothered to read the fine print. And in fact, there’s an entirely sensible explanation for his behavior, and that of many other California billionaires in the process of severing ties with the state. They have good reason to believe that the initiative’s unusual snapshot residency rule won’t pass legal muster, and that a mid-year move could spare them from some or all liability under the wealth tax.
My new Tax Foundation paper explores the legal arguments at play, with a particular focus on two key constitutional objections:
1. The initiative retroactively establishes a wholly new tax rather than simply modifying an existing one.
2. The tax is not apportioned for those who depart the state and even extends to post-departure wealth accumulation. The former challenges the validity of the January 1 residency date, while the latter challenges the December 31 valuation date and continued taxation after a taxpayer’s mid-year departure.
Saez and Zucman claim that the initiative’s choice of residency date, chosen “precisely to prevent such behavioral responses,” renders it “difficult if not impossible for billionaires to leave the state, i.e., meet of [sic] the stringent rules that the California tax law uses to determine that a taxpayer has effectively left the state.” It is easy to imagine this as an exhibit in future litigation over the tax’s retroactive provisions.
Tax changes can be retroactive; this is well-established. But retroactivity comes with guardrails. My new paper explains why the California wealth tax initiative is so vulnerable to legal challenge, and why mid-year movers have good reasons to depart.
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