Posted originally on Jun 22, 2026 by Martin Armstrong |  

California never seems to learn. Instead of asking why companies are fleeing the state, politicians immediately look at a successful IPO and see a new tax opportunity. The latest excitement surrounds the massive SpaceX public offering and the possibility that thousands of California employees and investors could generate billions in capital gains taxes for Sacramento. State officials have openly acknowledged that these gains could help plug budget holes and support spending programs that have become increasingly dependent on volatile tax receipts.

This is precisely the problem. Governments begin to treat one-time wealth creation events as recurring revenue streams. California has built a fiscal structure that relies heavily on a small percentage of wealthy taxpayers. When the stock market is booming and IPOs are plentiful, tax collections surge. Politicians then expand programs and spending commitments as if the money will continue forever. When the cycle turns, revenues collapse and deficits explode. We have seen this movie repeatedly, from the dot-com bubble to the technology boom of recent years.

Elon Musk moved both Tesla and SpaceX headquarters out of California because of the state’s hostile business climate, regulations, and taxes. Yet California still hopes to collect a substantial windfall because many employees remain in the state and will owe capital gains taxes when shares are sold. Instead of recognizing that entrepreneurs are escaping, politicians are celebrating one last opportunity to reach into their pockets.

California is simultaneously debating a billionaire wealth tax that could impose a one-time 5% levy on the state’s richest residents. Supporters claim it could generate roughly $100 billion, while critics warn it would accelerate capital flight and ultimately reduce future tax collections. The very fact that such proposals are being seriously considered tells you everything about the mentality in Sacramento. They see wealth not as something to encourage and cultivate, but as a resource to be harvested whenever government spending gets out of control.

Governments never solve fiscal problems by raising taxes on success. They simply encourage capital to move elsewhere. California became an economic powerhouse because it attracted innovators, entrepreneurs, and investment. Now the state increasingly views every successful company, every IPO, and every wealthy resident as another source of revenue. That mentality marks the transition from encouraging growth to hunting wealth.