By: Matt Mahan
San Jose Mayor Matt Mahan argues that a wealth tax isn’t just a disastrous idea for California, it ignores the state’s actual problems.
Two of California’s most talented political leaders spent their holidays engaged in an online battle over two hot-button issues: the need for a so-called Billionaire Tax and the level of waste, fraud, and abuse in state government.
Rep. Ro Khanna sparked the debate(opens in new tab) by saying California needs the union-backed tax — a supposedly one-time tax of 5% of all assets for residents with more than $1 billion in total wealth — to make up for federal cuts to healthcare spending. Gov. Gavin Newsom came out in opposition to the tax, arguing that it would contribute to driving the innovation economy out of California and result in fewer middle-class jobs, less innovation, and lower tax revenue in the long run.
As someone who leads a city that helps power California’s economic engine, I can tell you that both of these talented leaders are right. And both are wrong.
There certainly is a growing and dangerous level of economic inequality in our nation. The federal government’s cuts to our health safety net need addressing, but at the national level. As Khanna conceded(opens in new tab) after receiving fierce pushback from tech leaders, new taxes should be paired with cutting out waste and fraud in government, estimated to cost tens of billions of dollars per year.
However, making all Californians poorer is not the answer to a growing concentration of wealth. It may feel good in the short run and advance the political agenda of the supporters of this measure, but driving out the entrepreneurs and innovators who have enriched California is not the answer to this pressing societal question.
While Newsom is showing real leadership and even political bravery by opposing this populist but counterproductive response to economic inequality, his ever-ready social media team went off the rails when it took umbrage at Khanna’s assertion that the state needs to rid itself of the massive levels of waste and fraud in government. His team’s defensiveness(opens in new tab) — in which they deployed the greatest epithet they could muster: “MAGA-made-up” — is off base and hurts both California and the governor’s own cause.
We know there is waste in California government. Credible reports show that more than $20 billion was stolen(opens in new tab) via fraudulent claims to our unemployment system during the pandemic. The office of the chancellor of the state’s community college system reports that up to 30% of applications(opens in new tab) for financial aid are fraudulent. And let’s just say the quiet part out loud: If you won’t say how much major projects like the state’s new Capitol annex(opens in new tab) are costing, it is probably because they are costing too much. That’s before looking at the billions wasted on government technology failures like the not-yet-upgraded 911 system(opens in new tab) or the tens of (opens in new tab)billions(opens in new tab) in spending on homelessness that didn’t directly reduce the number of people living in misery on our streets statewide — even with big cities like San Jose doing our part.
Rooting out this waste, fraud, and abuse makes government more effective, and the governor should be leading that effort, rather than defending the indefensible.
I know both leaders well enough to know they are generational talents who can rise above petty disputes to pass policies that will help California thrive again. Khanna must acknowledge that of the 12 European countries that tried to impose a wealth tax 30 years ago, nine failed(opens in new tab) — causing capital flight and reducing total tax revenue in many cases. He can acknowledge that the true answer to economic inequality needs to come at the federal level and should start with closing gaping loopholes in federal tax rules that allow the wealthiest to never pay on billions in capital gains. Such reforms would make our national economy stronger without making California weaker.
As for Newsom, he can put his talents to work making California function better with less waste, fraud, and abuse. He can show that it isn’t just how much you collect in taxes but how well you spend those taxes. More efficient spending on safety, reducing homelessness, energy, and other priorities would enrich all of us.
It is important to remember that if California wants to “stick it to the rich,” the rich have a simple response: They can just leave California. And news reports(opens in new tab) confirm that some have left and others are preparing to leave — a particularly dangerous outcome given that the top one percent of income earners pay roughly 40% percent of income tax(opens in new tab) in California each year.
Our governor is right: The “wealth tax” will make us all poorer in the long run. But our congressman is also right: California will be stronger if we root out the waste, fraud, and simple inefficiencies in our sprawling government.
So before we embrace a disastrous state tax policy that will wind up costing all Californians, not just its wealthiest residents, let’s listen to Newsom’s strong arguments. And before we dismiss the idea of tackling waste and fraud as merely partisan, let’s acknowledge the hard truth Khanna is telling: We all are richer when our tax dollars are spent better.
Matt Mahan is the mayor of San Jose.
This article was originally published in the San Francisco Standard.