history

SACRAMENTO — When a California governor goes to Europe and lectures world leaders that they must “grow a spine” and “stand tall” against the American president, I wince.

Not that they shouldn’t, nor that President Trump doesn’t deserve almost any nasty thing said about him. It just seems a tad arrogant.

A world stage in the Swiss Alps is not the proper place for a state governor to be scolding leaders of foreign nations about how they should deal with the U.S. president, no matter how despicably Trump behaves.

Gov. Gavin Newsom is merely the top elected official of one state, even if he can boast that it’s the fourth- or fifth-largest economy in the world. It still doesn’t have a seat at the United Nations or an awesome military that is the heart of NATO and the Western alliance.

Contrary to hackneyed bragging points, California is not a “nation state.” We’re a state — highly populated, but one of 50.

At the World Economic Forum in Davos, Switzerland, last week, Newsom was like the lightweight boxer trying to punch far above his class.

He was attempting to score points in the early rounds of his fight for the 2028 Democratic presidential nomination, repeating what has been working well for him: swinging from the heels at Trump and attracting the attention of party activists across the country.

And that’s fine for here in the U.S. This is the arena where it belongs.

One can argue that Newsom overdoes it, reaching for all the national exposure he can grab and not focusing enough on the job Californians hired him for at the state Capitol. But there’s no disputing his political success nationally. He’s leading the early polls of potential contenders for the presidential nomination.

But that was probably of little concern for the foreign leaders and other global elites attending the prestigious annual World Economic Forum.

Newsom was given two speaking slots, presumably to inform international movers and shakers about California’s golden investment opportunities. But after arriving, he began blathering about the evil American president, Trump’s threats to hike tariffs and seize Greenland and how European leaders are allegedly cowering before him.

The governor soon after was disinvited to speak at one event, a series of interviews hosted by Fortune magazine at USA House, the Trump administration headquarters.

Newsom blamed Trump for blocking his participation, accusing White House staffers of pressuring the event sponsors.

Well, duh! You can’t shoot spit wads like a little kid at a big meanie and not expect some to be shot back.

“No one in Davos knows who third-rate governor Newscum is or why he is frolicking around Switzerland instead of fixing the problems he created in California,” asserted White House spokeswoman Anna Kelly, using the classless president’s oft-repeated derogatory name for the governor.

Whatever. Snatching Newsom’s mic was probably the right decision. Davos delegates didn’t need to hear a political stump speech attacking the American president or be berated by a governor for also not beating up on him.

This was some of the fiery, expletive-laced stuff the governor had been telling reporters, referring to European leaders:

“Wake up! Where the hell has everybody been? Stop this bullshit diplomacy of sort of niceties. … Have some spine, some goddamn balls ….

“The Europeans should decide for themselves what to do, but one thing they can’t do is what they’ve been doing. … And it’s embarrassing. Just, I can’t take this complicity, people rolling over. I should have brought a bunch of knee pads for all the world leaders. … I mean, it’s just pathetic.

“And I hope people understand how pathetic they look on the world stage.”

The leaders of Canada and France demonstrated how to make the same point — but with dignity — about standing firm against bullying.

“There is a strong tendency for countries to go along to get along. To accommodate. To avoid trouble. To hope that compliance will buy safety. It won’t,” Canadian Prime Minister Mark Carney told the forum attendees.

French President Emanuel Macron said, “We do prefer respect to bullies. And we do prefer rule of law to brutality.”

Newsom was allowed to keep one speaking slot: an interview on the forum’s main stage with Ben Smith, editor in chief of the news outfit Semafor.

“Is it surprising the Trump administration didn’t like my commentary and wanted to make sure that I was not allowed to speak? No,” Newsom said. “It’s consistent with … their authoritarian tendencies.”

There’s something distasteful — perhaps even unpatriotic — about an elected American official, regardless of party, vilifying a U.S. president when among allied leaders abroad. Even if it is the dreadful Trump.

But American politics has changed greatly for the worse in recent years, as evidenced by the Newsom-Trump spitball flinging.

California Gov. George Deukmejian spoke at the 1989 Davos forum and was a model of civil diplomacy, promoting the state’s trade and investment opportunities and laying off demagoguery.

Of course, Deukmejian and President Bush were both Republicans. So the Duke didn’t assail the president, not that he would have anyway. He had too much respect for the presidential institution when traveling abroad.

But unlike today’s top elected Republicans, Deukmejian didn’t shy away from giving the president advice. At Davos, the governor urged Bush not to renege on his “read my lips, no new taxes” pledge that got him elected. To reduce the federal deficit, cut spending, the governor cautioned.

Bush ignored such advice and raised taxes — and lost his 1992 reelection bid to Democrat Bill Clinton.

Clinton’s campaign motto is still a classic: “It’s the economy, stupid!”

Newsom needs to pick up on that. Or at least work it into his anti-Trump rant.

What else you should be reading

The must-read: GOP rails against Newsom’s late date for special election to fill Rep. Doug LaMalfa’s seat
The TK: Trump lawyers urge Supreme Court to block California’s new election map while upholding Texas’
The L.A. Times Special: California is suffering truth decay. Sacramento should do something about it

Until next week,
George Skelton

—
Was this newsletter forwarded to you? Sign up here to get it in your inbox.

In the roiling debate over California’s proposed billionaire tax, supporters and critics agree that such policies haven’t always worked in the past. But the lessons they’ve drawn from that history are wildly different.

The Billionaire Tax Act, which backers are pushing to get on the November ballot, would charge California’s 200-plus billionaires a one-time, 5% tax on their net worth in order to backfill billions of dollars in Republican-led cuts to federal healthcare funding for middle-class and low-income residents.

Critics of the proposal have argued that past failures of similar wealth taxes in Europe prove they don’t work and can cause more harm than good, including by driving the ultra-rich out. Among those critics is San José Mayor Matt Mahan, a tech-friendly Democrat who is contemplating a run for governor.

“Over the last 30 years, we’ve seen a dozen European countries pursue national-level wealth taxes,” Mahan said. “Nine of them have rolled them back. A majority have seen a decline in overall revenue. It’s actually shrunk the tax base, not increased it, and it’s because it creates a perverse incentive and drives capital flight.”

Backers of the measure acknowledge such failures but say that they learned from them and that California’s proposal is stronger as a result.

Brian Galle, a UC Berkeley tax law professor and one of four academic experts who drafted the measure, said if it gets on the ballot, every voter in the state will receive a copy of the full text, a one-page explainer on what it does, and nearly two dozen additional pages of “rules for preventing wealthy people and their army of lawyers from dodging” it.

Many of those rules, he said, are based on historical lessons from places where such taxes have failed, but also where they’ve succeeded.

“If you understand the actual lessons of history, you understand that this bill is more like the successful Swiss and Spanish wealth taxes,” Galle said. “Part of that is learning from history.”

Warnings from Europe

Since the 1990s, several European countries have repealed net wealth taxes, including Austria, Denmark, Finland, France and Germany.

A major example cited by critics of the California proposal is France, which implemented a much larger wealth tax on far more people, including many millionaires. The measure raised modest revenues, which fell as rich people moved out of the country to avoid paying, and the measure was repealed by the government of President Emmanuel Macron in 2017.

In a 2018 report on net wealth taxes, the Paris-based Organization for Economic Co-operation and Development found that European repeals were often driven by “efficiency and administrative concerns and by the observation that net wealth taxes have frequently failed to meet their redistributive goals.”

“The revenues collected from net wealth taxes have also, with a few exceptions, been very low,” it found.

Critics and skeptics of the California proposal say they expect California to run into all the same problems.

Mahan and others have pointed to a handful of prominent billionaires who already appear to be distancing themselves from the state, and said they expect more to follow — which Mahan said will reduce California’s “recurring revenue” beyond the amount raised by the one-time tax.

Kent Smetters, faculty director of the Penn Wharton Budget Model, which analyzes the fiscal effects of public policies, said net worth taxes in other countries have “always raised quite a bit less revenue than what was initially projected,” in large part because “wealth is easy, as it turns out, to try to reclassify or move around” and “there’s all these tricks that you can do to try to make the wealth look smaller for tax purposes.”

A bus in London promotes a campaign by British millionaires advocating for an end to extreme wealth and inequality.

(Carl Court / Getty Images)

Smetters said he expects that the California measure will raise less than the $100 billion estimated by its backers because billionaire wealth in California — much of it derived from the tech sector — is relatively “mobile,” as many tech barons can move without it affecting business.

“Policymakers have to understand that they’re not going to get nearly as much money as they often project from a purely static projection, where they’re not accounting for the different ways that people can move their wealth, reclassify their wealth, or even just move out of the state,” Smetters said. “So far, we only know of a few people — with a lot of money — who have moved out of the state, [but] that number could go up.”

Kevin Ghassomian, a private wealth lawyer at Venable who advises rich clients, said he expects the administrative costs of enforcing the tax to be massive for the state — and much greater than the drafters have anticipated.

On the front end, the state will face a wave of legal challenges to the tax’s constitutionality and its retroactive application to all billionaires living in the state as of the end of 2025.

Moving ahead, he said, there will be litigation from wealthy individuals whose departure from California is questioned or who dispute the state’s valuation of their net worth or individual assets — including private holdings, which the state doesn’t have extensive experience assessing.

Valuating such assets will be “a nightmare, just practically speaking, and it’s going to require a lot of administrators at the state level,” Ghassomian said, especially considering many California billionaires’ wealth is in the form of illiquid holdings in startups and other ventures with fluctuating market valuations.

“You could be a billionaire today, and then the market plummets, and now all of a sudden, you’re a pauper,” he said. “It could really lead to some unfair results.”

Lessons from Europe

Backers of California’s proposal said they have accounted for many of the historical pitfalls with wealth taxes and taken steps to avoid them — including by making it harder for wealthy Californians to simply shuffle money around to avoid the tax.

“There are a lot of provisions that are designed based on what has worked well in other countries with wealth taxes in the modern era, especially Switzerland, and there are also provisions meant to shut down some of the holes in some of the earlier wealth tax efforts, especially the France one, that were viewed as not successful,” said David Gamage, a University of Missouri tax law professor and another of the proposal’s drafters.

Galle said the Organization for Economic Co-operation and Development study found that many of Europe’s historical wealth taxes “hadn’t figured out how to solve the problem of what small businesses were worth,” so were more narrowly focused on publicly traded stock and real estate. “Over time, there was a lot of abuse where people shifted their assets to make them look privately held.”

The California proposal “tries to solve that problem” by including small businesses and other privately held wealth in their calculations of net worth, he said — and benefits from the fact that such wealth has gotten a lot easier to track and appraise in recent years.

Doing so would be a familiar exercise for many California billionaires already, he said, as it is hard to raise venture capital, for example, without audited financial statements.

Backers of the measure said it is harder for U.S. citizens to avoid taxes by moving abroad than it has been for Europeans, and that evidence from Switzerland and Spain suggests differing tax rates between a nation’s individual states do not cause massive interstate flight.

San José Mayor Matt Mahan, who might run for governor, opposes the proposed tax on California billionaires.

(Rich Pedroncelli / Associated Press)

For example, each state in Spain sets its own wealth tax rate, and Madrid’s is 0% — but that has not caused an exodus from other parts of Spain to Madrid, Galle said.

The risk of California billionaires avoiding the tax by simply moving to another U.S. state was further mitigated by the measure’s Jan. 1 deadline for avoiding the tax. Galle said the deadline “was intended to make it more difficult for individuals to concoct the kind of misleading, apparent moves that wealthy people have used in other places to try to avoid a wealth tax.”

Gamage said that “history shows if a tax on the wealthy can be avoided by moving paper around, claiming that you live in another location without actually moving your life there, moving assets to accounts or trusts nominally in foreign countries or other jurisdictions, you see large mobility responses.”

But when “those paper moves are shut down,” there’s much less moving — and “that’s the basis for the California model,” he added.

The outlook

Ghassomian, who said he has been “fielding a lot of inbound inquiries from clients who are just kind of worried,” said it is clear that the proposal’s authors “have done their homework” and tried to design the tax in a smart way.

Still, he said, he has concerns about the cost of administering the tax outpacing revenues, especially amid litigation. Residency battles alone with billionaires whose claims of departing the state are questioned could take “years and years and years” to resolve, he said.

“The revenue has to line up with expenditures, and if you can’t count on the revenue because it’s going to be tied up in courts, or it’s going to be delayed, then I think that creates some real logistical hurdles,” he said.

Smetters said predicting revenues from a tax on so many different types of assets is “really hard,” but one thing that has generally held true through history is that “most countries, even with less-mobile wealth, typically do not get the type of revenue that they were hoping for.”

David Sacks, a venture capitalist and President Trump’s AI czar who decamped from California to Texas, said on the sidelines of the World Economic Forum in Davos, Switzerland, last week that the measure was an “asset seizure” more than a tax, and that the state would be headed in a “scary direction” if voters approved it.

Darien Shanske, a tax law professor at UC Davis and another drafter of the proposal, said he and his colleagues did their best to “look at the lessons of the past, and apply them in a way that makes sense and is generally fair and administrable” — in a state where wealth inequality is rapidly growing and a wealth tax presents unique opportunities.

“Having a tax on billionaires does make particular sense in California because of the large number that live here and the large number who have made their fortune here,” he said.

Shanske said the proposed tax is designed to provide California a way to “triage” soaring healthcare premiums resulting from legislation enacted by the Trump administration and congressional Republicans. The proposal asks for contributions from people who will quickly recoup what they are taxed given the exponential growth of their assets, he said.

Emmanuel Saez, director of the Stone Center on Wealth and Income Inequality at UC Berkeley and another drafter of the measure, said many of the repealed European taxes targeted millionaires while providing loopholes for billionaires to avoid paying, whereas California’s measure is “exactly the reverse.”

He said the measure will raise substantial revenue in part because California billionaire wealth more than doubled from 2023 to 2025 alone, and is “the innovative and first-of-its-kind tax on the ultra-wealthy that the moment requires.”

Thomas Piketty, a French economist and author of “Capital in the Twenty-First Century,” called California’s proposed tax “very innovative” and “relatively modest” compared with massive wealth taxes after World War II — including in Germany and Japan — and said it would not only improve healthcare in the state but “have an enormous impact on the U.S. and international political scene.”

“In the current context, with a deeply entrenched billionaire class, wealth taxes meet even more political resistance than in the postwar context, and this is where California could make a huge difference,” he said. “The fact of targeting the revenue to health spending is also very innovative and can help convince the voters to support the initiative.”

Times staff writer Seema Mehta contributed to this report.