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This loss of wealth, especially if it continues, could have a material long-term negative impact on California’s tax revenues as well as its already poor reputation for not being a good place to do business and build wealth.

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There are many lessons to be learned by Canada from this yet-to-be-concluded story.

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The first is that vested-interest proposals — like most ballot initiatives — are often flawed. Forms of populist tax policy show up in Canada in different ways, such as politically motivated tax incentives (the recently introduced Personal Support Workers Tax Credit and the numerous “green initiatives” are good examples) and policies (the prohibition of deductions on short-term rentals is another example). Such messes have no place in a coherent and proper tax system.

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The second lesson is to be careful about aggressively going after a small group of people to fund taxation revenues. Most won’t disagree that higher-income people should pay progressively more in tax than lower-income people, but tipping points are often met by the introduction of poor policy that continuously asks them to pay more.

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The speaking point that the Justin Trudeau government nauseatingly trotted out from 2015 onwards to justify increased taxation on higher-income taxpayers — “We’re asking the wealthiest one per cent to pay a little more so the middle class can pay less” or “We’re asking the rich to pay just a little bit more” — was a tipping point for many. Such blatant attacks have consequences, including people leaving Canada.

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The third is that wealth taxes have a spotty record of success around the world. Despite continuous failures, they continue to be recommended by left-leaning organizations for solutions to many of society’s ills.

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The Trudeau government toyed with the idea of a possible one-time wealth tax imposition in 2021-2022, but ultimately didn’t impose it. A July 15, 2021, Parliamentary Budget Officer report estimated that a one-time wealth tax of three per cent on wealth more than $10 million and five per cent over $20 million would raise between $44 billion and $60 billion over five years. Ouch.

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California’s billionaire tax proposal may or may not survive, but the damage is already evident. The mere threat has accelerated departures and reinforced the state’s reputation for fiscal unpredictability. Canada would be foolish to dismiss this as an American curiosity. Our version of populist tax policy simply takes different forms, but the economic consequences are remarkably similar.

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Good tax systems are deliberately built. They are boring by design, resistant to pressure and anchored in principles that survive election cycles. Once governments abandon those principles, they trade durable revenue for short-term political satisfaction and rarely get either.

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That’s why I still remember my son’s elementary school petition. It had a cause, momentum and plenty of cheering supporters, but no responsibility for coherence, durability or what came next. In Canada, where governments have long ignored sustained calls for meaningful tax reform, policy is increasingly driven by pressure and optics rather than coherent tax design.

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California’s ballot initiative is laughable, but it reflects a mindset Canada should be working hard to avoid.

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Kim Moody, FCPA, FCA, TEP, is the founder of Moodys Tax/Moodys Private Client, a former chair of the Canadian Tax Foundation, former chair of the Society of Estate Practitioners (Canada) and has held many other leadership positions in the Canadian tax community. He can be reached at kgcm@kimgcmoody.com and his LinkedIn profile is https://www.linkedin.com/in/kimgcmoody.

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