Billionaire Don Hankey criticizes Prop 40 after leaving California

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

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

Among them, auto loan titan Don Hankey told the California Post that he left the state last December, just before the residency deadline for Proposition 40’s proposed billionaires tax.

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

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

“It just doesn’t make sense to me, from an economic standpoint,” he said.

Hankey employs about 2,000 people in Southern California and told Forbes in January that its headquarters would remain in Los Angeles for the time being. 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 further next year. There are fewer potholes in Las Vegas!”

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

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

Economists warned there was no way to guarantee the tax would only be imposed once. “Such reputational damage could drive more capital and taxpayers out of California,” they write.

The letter also raises legal questions regarding the retroactive scope of the tax, interstate taxation, and constitutional limits on the taxation of intangible property. He also warns that valuing private companies and other illiquid assets would be a nightmare for taxpayers and the state.

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

Proponents of the wealth tax, 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 predicts a continued decline in potential income tax revenue as some billionaires leave.

Dave Regan, the SEIU-UHW president who orchestrated the measure, presented it as a five-year stopgap to make up for federal cuts to health care.

He also criticized billionaires who say they are being unfairly targeted, telling ABC7 that the tax “makes you a participant in a society that has made you incredibly rich.”

The union rejected Stanford’s research, telling CBS News that the tax was intended to make billionaires pay their fair share to prevent the state’s health care system from collapsing.

Stanford researchers Benjamin Jaros and Joshua Rauh estimated that the wealth tax would raise only a third of the $100 billion called for by Prop. supporters. 40 – between $28 billion and $36 billion – but would eliminate billions in annual income tax revenue from wealthy taxpayers who leave California.

Polls show a tight race for Proposition 40, with 46% of likely voters supporting the billionaires tax and 43% against, according to a poll released last month. An Oct. 27 poll shows support for Prop. 40 decreases, with Props. The 41 and 42 are now probing in front of him.

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

“The wealth tax is not a very good form of tax,” writes Jon Hartley, an economist at Stanford, in an opinion piece written by more than 100 economists against the wealth tax in the California Post. “Why? The tax base is very mobile. Unlike property taxes, sales taxes, and income taxes, it is very easy to simply change residence to avoid a wealth tax. Investments, capital, and businesses 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 that his organization spent months developing a legal strategy to fight the wealth tax if it passed.

“We are fully prepared to take legal action if it becomes necessary,” Lapsley said.

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

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

Gov. Gavin Newsom, who opposed the billionaires tax from the start, supported Proposition 42 last month. He said in a statement that “Californians deserve to have their retirement and savings protected from new state taxes.”

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

Instead, he imposed a national tax on the wealthy, including a minimum rate for anyone with more than $100 million.

Xavier Becerra, the front-runner to succeed Newsom, also spoke out against Proposition 40. He called the tax “sketchy” and argued the state needed a long-term solution to health care funding.

Supporters of Proposition 40 accused the governor of siding with billionaires over patients. SEIU-UHW Vice President Debru Carthan said “he would rather see millions of children and families lose their health care” than tax a few hundred billionaires.

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

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

Some of Lapsley’s concerns were echoed in an open letter published by 120 leading economists, including four Nobel laureates and former U.S. government officials, warning that parts of the tax are illegal and even reckless.

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

“There is always a risk that a new wealth tax will be imposed again. Such reputational damage could drive more capital and taxpayers out of California.”

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

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

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

He eventually agreed to stay based near Meta’s headquarters for eight years as part of an agreement with the board of directors.

Despite leaving, Hankey said he still loves California’s weather, scenery and people. His frustration is focused on his economic management.

“California is a great state. I love it. It has everything,” he said.

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

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