Sacramento – Gavin Newsom isn’t just fighting wildfires and homelessness anymore. This week, the California governor took aim at a different kind of blaze: the smoldering rage over American inequality. Speaking at a progressive economic forum, Newsom called for a national billionaires tax, declaring, “It’s time for an economic reset.” The pitch is simple: impose a minimum tax on the ultrarich and shut down what he calls “tax-free lifestyle loan” loopholes. But the politics behind it are anything but simple.
The ‘Billionaire Minimum Tax’ – What It Is
Newsom’s proposal borrows heavily from a plan floated by Senator Elizabeth Warren and other Democrats: a tax that ensures billionaires pay at least a certain percentage of their income – including unrealized capital gains – each year. Under current law, the wealthiest Americans can borrow against their stock holdings to fund yachts and mansions without selling a share, effectively avoiding income taxes. Newsom calls these “lifestyle loans” a scam. “If you’re earning billions, you should be paying billions,” he said. The plan would hit roughly 700 U.S. billionaires, raising an estimated $400 billion over a decade, according to progressive think tanks.
“It’s time for an economic reset. The rules of the game have been rigged for the very top for too long.” – Gavin Newsom
Why Now? The Political Calculus
Newsom’s timing isn’t accidental. With a potential 2028 presidential run looming, he’s staking out ground to the left of President Biden, who has shied away from a direct billionaires tax. Polling shows broad public support for such a measure – a recent Reuters/Ipsos survey found 67% of Americans favor a minimum tax on billionaires. But Newsom needs more than popularity; he needs a narrative that distinguishes him from a Democratic field that could include Warren, Bernie Sanders, and Transportation Secretary Pete Buttigieg. By championing a tax that targets the top 0.0002%, Newsom is betting that class warfare plays well in a primary.
Yet the road from Sacramento to the White House is littered with failed tax crusades. Warren’s wealth tax died in committee. Sanders’ estate tax expansions went nowhere. The billionaires tax faces a gauntlet of constitutional challenges, lobbying by Silicon Valley, and a Supreme Court that has grown skeptical of federal power over wealth. Newsom knows this. That’s why he’s framing it as a “minimum tax” – borrowing from the corporate alternative minimum tax – to avoid the “unrealized gains” trap that critics say would require annual valuations of art, private companies, and other hard-to-price assets.
The Loophole Hunters Strike Gold
The “tax-free lifestyle loan” loophole is real, and it’s obscene. Billionaires like Elon Musk and Jeff Bezos have used their stock as collateral for personal loans worth billions, paying interest rates far below market and deducting the interest, all while their wealth compounds tax-free. When they die, heirs inherit the stock at a stepped-up basis, wiping out capital gains tax entirely. The result: the richest Americans often pay a lower effective tax rate than their secretaries. Newsom’s proposal would treat these loans as income, closing a gap that the IRS has flagged for years but Congress has refused to touch.
But here’s the rub: enforcement would be a nightmare. The IRS would need to track every loan taken by every billionaire against every asset. The Tax Foundation, a right-leaning think tank, estimates compliance costs could eat up 10% of revenue. And billionaires are adept at moving money offshore, hiring armies of accountants to turn income into “return of capital.” Newsom’s team insists they can build a wall around the loophole, but history suggests otherwise.
The California Precedent – And the Hypocrisy
Newsom’s critics were quick to point out that California itself is a billionaire haven. The state has more billionaires than any other – 187, per Forbes – and its progressive tax system has done little to slow their flight. In 2020, when Newsom signed a law taxing remote workers, tech moguls threatened to decamp for Texas. Now, with a $68 billion budget deficit, California is cutting programs even as Newsom preaches sacrifice for the rich. “He wants to tax billionaires nationwide but can’t manage his own state’s finances,” tweeted former Trump advisor Stephen Miller. It’s a potent attack: if Newsom can’t fix California’s inequality, why trust him with the country’s?
Yet the governor has a counter: “California’s deficit is proof that even the richest state can’t fix a broken national system alone.” He argues that a federal tax would prevent a race to the bottom, where states compete to attract billionaires with low taxes. “If you close the loopholes everywhere, there’s no place to run,” he said.
The Verdict
Newsom’s billionaires tax is bold, popular, and probably doomed. The political coalition to pass it – progressives plus a handful of moderate Democrats – doesn’t exist in a Senate where 60 votes are needed. Even if it cleared Congress, the Supreme Court would likely strike it down as an unapportioned direct tax, per the 16th Amendment’s limits. But Newsom isn’t really trying to pass it. He’s trying to define himself. In an era of rising populism, the governor is betting that the moral clarity of taxing the ultrarich will resonate long after the legislative details are forgotten. And maybe that’s the point: sometimes the act of calling for a reset is more powerful than the reset itself.
So here’s the question Newsom leaves us with: If not now, when? And if not this, what?
