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Family-Owned Businesses Get Hurt When the ‘Math Doesn’t Add Up’ With New Wealth Taxes
Research, History Point to ‘Wealth Flight,’ Negative Revenue Outcomes with California Ballot Initiative, Federal ‘Savings Penalty Tax’ Proposals
Sometimes it comes down to basic math.
Our government spends more than it takes in and state or federal budgets can be managed with deficits for a time. But time runs out, especially if the gap between spending and income increases decade after decade.
In California, for example, the population is shrinking while government spending is expanding.
Between 2021 and 2025, studies show real spending by the state increased from $180 billion to $240 billion annually. During this same time-period the population shrunk from 39.4 million residents to 38.7 million.
How does this add up? It doesn’t.
Of course, lawmakers look for ways to backfill this gap, like taxing the income and assets of family-owned businesses through new ballot measures on so-called millionaires and billionaires.
On the national level, federal spending versus revenue per capita shows an even larger gap.
Government spending records show that in 2016 revenues brought in about $10,000 per person, while government spending was about $12,000 per person, a 20% deficit gap. A big hole, but not impossible to fill with a few tweaks in growth and a few tweaks in spending.
Fast forward ten years, the projected federal revenue in 2026 is expected to be about $15,200 per person, but the projected federal spending per person has jumped to $21,250, now a 40% deficit gap!
The federal government collects over $5 trillion in taxes annually, but it spends $7 trillion, leaving an annual debt of $1.8 trillion, and growing. Our total national debt is now over $40 trillion.
The math doesn’t work. No amount of taxing family businesses, millionaires, or billionaires is going to fix this problem.
The solution is not about raising new taxes, and confiscating hardworking family assets, the real issue is wasteful government spending, corruption, and fraud.
In 2021 alone, government waste and fraud hit a peak of $281 billion dollars, according to the General Accounting Office.
Wealth taxes, or let’s call them what they are, “savings penalty taxes,” will not fill the waste gaps in our state and federal budgets.
The math says we need to stop spending!
These savings penalty tax measures, often done with voter ballot initiatives, won’t stop with the wealthy, it may start with billionaires and millionaires, but as more and more money gets spent, it will eventually trickle down and impact family-owned businesses, and then everyone.
And the math still won’t add up.
Ballot Measure Scrutiny
Momentum is building on both sides of the Wealth Tax (“Savings Penalty Tax”) debate, which naturally creates a highly polarized political environment.
One issue that needs discussion is: How can citizens and family-owned businesses be taxed without a proper legislative back and forth? How can special interest groups push through a new tax without a legislative process?
In a recent Bloomberg op-ed, Robert F. Mancuso, a former SEC attorney and CEO of Capri Capital Partners, raised the issue of: “Do state ballot initiatives deserve more scrutiny?”
Typically, he points out, legislators debate, evaluate, and pass legislation, which becomes law upon a state governor’s signature. This process has historically worked regardless of the subject of legislation.
But special interest group’s look to side-step this democratic process with a ballot initiative.
If pro-tax coalitions collect enough signatures, they can put anything on a ballot and take it directly to voters in California.
No proposal has produced more controversy then the 2026 California Billionaire Tax Act supported by the healthcare-based Service Employees International Union. If voted in on November 3, it would impose a one-time 5% tax on net worth over $1 billion, excluding real estate, pensions, and retirement accounts
It’s already triggered “wealth flight.” Many ultra-high-net-worth individuals are relocating their primary residences and corporate headquarters to lower-tax states like Florida and Texas to preempt the tax.
Critics, backed by analyses from groups like the Tax Foundation, argue wealth taxes create severe valuation issues for private businesses, double-tax accumulated capital, and risk massive economic damage.
Mancuso argues California’s ballot initiative is the equivalent of taxation without representation, because taxpayers opposed to the initiative can’t petition or complain to their legislator.
Despite the rhetoric, Mancuso in his op-ed says, “supporters of a controversial and unprecedented wealth tax in California have embraced a new technique to advance their point of view and whether permitted by a state constitution or not, such a method deserves close judicial scrutiny so that it doesn’t allow the many to trample on the rights of the few.”
Another example is Washington state, where the operating budget exploded from $102 billion to $166 billion over the last six years, far outpacing inflation and population growth combined.
State lawmakers enacted a 7% capital gains tax on high earners. The result: thousands left the state and took their incomes with them. Now, lawmakers are proposing a 9.9% income tax on the state’s high earners. The result: family-owned businesses are saying “bye-bye,” and this also includes Starbucks founder Howard Schultz.
The same will happen to California if it adopts the billionaire — or some future millionaire — wealth tax.
What about the $100 billion proponents promise? Again, the math doesn’t add up.
According to researchers at the Hoover Institution, successful families, family-owned businesses, billionaires, and millionaires are moving out and have so far removed nearly 30% of this new projected tax base, according to a report from Veronique de Rugy, a senior research fellow at the Mercatus Center at George Mason University.
De Rugy says a wealth tax is likely to produce “a negative net fiscal return” where the state ends up with less revenue than it had before.
“Dramatic new taxes can temporarily mask an imbalance, but they can rarely solve one,” de Rugy says about her findings. “More often, higher taxes give politicians cover and enable even more spending growth. This merely delays the reckoning and makes the eventual adjustment more painful.”
Governments don’t face fiscal crises because they tax too little. It’s because they spend too much.
The math just doesn’t add up.
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Family Enterprise USA Action engages with legislators on Capitol Hill on behalf of family offices, hardworking families, and family-owned businesses. It is focused exclusively on the critical tax and economic policies that impact them. Since 1995, FEUSA Action has been the leading advocacy group working daily in Washington, D.C., to reduce and eliminate estate tax, gift tax, and generation skipping transfer tax while blocking increased income and capital gains taxes, the creation of a wealth tax, and other hostile policies that punish hardworking taxpayers and success in the U.S. It is a bipartisan 501.c4 organization.