Exclusive | Billionaire in exile blasts wealth tax as top economists warn California is already bleeding fortunes

A California billionaire who fled to Las Vegas weeks before the cutoff for the state’s proposed wealth tax is blasting the measure, as more than 100 leading economists, including four Nobel laureates and a former top White House economic adviser, warn it is already driving the rich out of the state.

At least seven billionaires, with a combined fortune of nearly $540 billion, about 30% of the state’s billionaire wealth, have already cut ties with California over the proposed tax, according to a Stanford study published last month.

Among them is car loan titan Don Hankey told the California Post he left the state last December, just ahead of the residency deadline for Proposition 40’s proposed billionaire tax.

“I felt I just wasn’t treated well, and they really didn’t want me to stay there with my companies,” said Hankey, whose firm Hankey Group specializes in real estate investments, insurance and auto loans.

Hankey confirmed his move came before the January deadline, saying he entered escrow in December. He warned that California has sacrificed years of income tax revenue by driving wealthy residents away.

“It just economically makes no sense to me,” he said.

Hankey employees around 2,000 people in Southern California, telling Forbes in January his HQ will stay in LA for now. But on Sunday he told The Post: “We own 50% of an office building (400 South 4th street) in Las Vegas.  We currently occupy 2 floors and may expand more next year. There are fewer potholes in Las Vegas!”

The economists, in an open letter organized by economist Jon Hartley, urged voters to reject the tax on Tuesday. Signatories include Glenn Hubbard, who chaired the White House Council of Economic Advisers under President George W. Bush, and University of Pennsylvania professor Jesús Fernández-Villaverde.

“There is already evidence that a considerable number have already left California to avoid any possibility of paying a potential Prop 40 wealth tax,” the letter states.

The economists warned there is no way to guarantee the tax would only be imposed once. “Such reputational harm could further drive capital and taxpayers out of California,” they wrote.

The letter also flags legal questions over the tax’s retroactive reach, interstate taxation and constitutional limits on taxing intangible property. It also warns that valuing privately held businesses and other illiquid assets would be a nightmare for taxpayers and the state.

Meanwhile, opponents of California’s proposed billionaire tax are preparing a legal challenge if Proposition 40 passes, sources told the California Post.

Wealth tax supporters, including lead sponsor SEIU-United Healthcare Workers West, say the proposal would tap billionaires’ fortunes to support health care and other services. The state’s legislative analyst projects an ongoing decline in possible income tax revenue as some billionaires leave.

Dave Regan, the SEIU-UHW president who masterminded the measure, has pitched it as a five-year stopgap to backfill federal health care cuts.

He has also hit back at billionaires who say they’re being unfairly targeted, telling ABC7 the tax “makes you a participant in a society that’s made you incredibly wealthy.”

The union dismissed the Stanford research, telling CBS News the tax is about making billionaires pay their fair share to keep the state’s health care system from collapsing.

Stanford researchers Benjamin Jaros and Joshua Rauh estimated the wealth tax would collect just a third of the $100 billion Prop. 40 advocates claimed — between $28 billion and $36 billion — but wipe out billions in annual income tax revenues from wealthy taxpayers who leave California. 

Polls show a tight race for Prop. 40, with 46% of likely voters backing the billionaire tax and 43% against, according to one poll released last month. An Oct. 27 poll shows Prop. 40 support slipping, with Props. 41 and 42 now polling ahead of it.

Even if Prop. 40 gets majority support in Tuesday’s election, two “poison pill” measures pushed by Google co-founder Sergey Brin, Prop. 41 and Prop. 42, could invalidate key parts of the billionaire tax if they win more votes. 

“Wealth taxes don’t make a very good form of tax,” writes Stanford economist Jon Hartley in a California Post op-ed from over 100 economists against the wealth tax. “Why? The tax base is highly mobile. Unlike property taxes, sales taxes, and income taxes, it’s very easy to just change one’s residence to avoid a wealth tax. Investment, capital, and firms can move very easily to avoid such a tax and this is well documented.”

Rob Lapsley, president of the California Business Roundtable, told The Post his organization has spent months developing a courtroom strategy to combat the wealth tax if it does pass. 

“We’re fully prepared to litigate should it become necessary,” Lapsley said.

“This is the worst possible tax policy at the worst possible time for California.”

Addressing Brin directly in an interview with NPR, Regan said California was “the state that made you rich, enormously rich.”

Gov. Gavin Newsom, who has opposed the billionaire tax from the start, threw his weight behind Prop. 42 last month. He said in a statement that “Californians deserve to have their retirement and life savings protected from new state taxes.”

Newsom has long warned the levy would backfire. In January he told Fox Business that “It’s really damaging to the state,” as reports showed wealthy residents moving money and businesses out.

He has instead pushed a national tax on the wealthy, including a minimum rate on anyone worth more than $100 million.

Xavier Becerra, the front-runner to succeed Newsom, has also come out against Prop. 40. He has called the tax “sketchy” and argued the state needs a long-term fix for health care funding.

Prop. 40’s backers accused the governor of siding with billionaires over patients. SEIU-UHW vice president Debru Carthan said “he’d rather millions of children and families lose their healthcare” than tax a few hundred billionaires.

Elizabeth Prelogar, the former U.S. solicitor general under President Joe Biden, is a partner at Cooley law firm and would serve as lead counsel, Lapsley said.

One potential challenge concerns the measure’s reach back to a residency date months before it even qualified for the ballot. Lapsley said that would be just one component of a broader attack on the proposal.

Some of Lapsley’s concerns were echoed in an open letter released by 120 leading economists, including four Nobel laureates, and former US government officials warning that parts of the tax are illegal, if not unwise.

“There is already evidence that a considerable number have already left California to avoid any possibility of paying a potential Prop 40 wealth tax,” the letter noted. 

“There is always a risk that another wealth tax could be imposed again. Such reputational harm could further drive capital and taxpayers out of California.”

Lapsley said his organization was aware of “dozens and dozens who have moved,” although he declined to identify people whose circumstances were discussed confidentially.

Hankey pointed to Google co-founders Sergey Brin and Larry Page as examples of wealthy departures, saying California has lost “some heavy hitters.”

Meta founder Mark Zuckerberg, who could face an estimated $12.5 billion tax bill if Prop. 40 is enacted, would be forced to sell off huge chunks of his stock to cover the liability, the corporation revealed in a recent filing. 

He ultimately agreed to remain based near Meta’s HQ for eight years in a deal with the board. 

Despite leaving, Hankey said he still loves California’s climate, landscape and people. His frustration centers on its economic management.

“California is such a great state. I love it. It’s got everything,” he said.

“I think we have to just run the state more like a business.”

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