The Exit Tax and the Surfer Who Left: California’s Proposed Wealth Tax and What It Means for Freedom of Movement

The State May Soon Tax You for Leaving, Which Is the Kind of Policy That Usually Appears in Countries Surfers Go to Get Away From

California has been proposing, in various legislative iterations over the past several years, a wealth tax on high-net-worth residents that includes a provision for taxing departing residents on unrealized gains for several years after they leave the state. The provision, which has not yet passed but which reflects a recurring impulse in California’s legislative deliberation, is the political equivalent of the Hotel California’s famous lyric translated into tax policy: you can check out any time you like, but you can never fully leave. The fact that it has been seriously proposed, repeatedly, by a major American state is worth examining carefully.

Why Exit Taxes Are Different from Other Taxes

The philosophical objection to exit taxes is not that taxation is illegitimate but that exit taxes impose a specific condition on freedom of movement that other taxes do not. The ordinary tax obligation is a condition of residing in a jurisdiction and using its services. An exit tax that follows you after you leave is a claim that the state has an ongoing interest in your earnings, assets, and financial decisions that persists after you have terminated your residency, your use of state services, and your participation in the state’s political community. It is the state asserting a perpetual financial claim on you based on the fact that you once lived there, which is a different relationship between citizen and state than democratic governance ordinarily describes.

The practical effect of an exit tax with a multi-year tail would be to substantially reduce California’s population of mobile, high-income individuals by making the financial cost of leaving — already high given the state’s above-market cost of living and tax burden — significantly higher for the most financially significant potential movers. This is either a feature or a bug of the policy depending on your political perspective: a revenue-maximizing view sees it as capturing value that would otherwise escape; a liberty-maximizing view sees it as a constraint on freedom of movement that is inconsistent with the principles of a free society.

The Surfer’s California

The surfer who built a career in California’s tech industry, bought a house near a good break, and is now considering whether the combination of housing costs, income taxes, regulatory complexity, and the general trajectory of California governance justifies continued residence, is making a calculation that thousands are making. The waves are still there. The quality of the experience is still extraordinary. But the financial and regulatory conditions of California life in 2026 have changed the calculation in ways that the exit tax proposal would change further, and the surfer who decides to take their skills and their wealth to a lower-tax jurisdiction is not making an anti-California statement — they are making a rational response to the conditions that California has created.

Interstate Competition and Its Effects

California’s proposed exit tax has a specific competitive context: other states, particularly Texas, Florida, and Nevada, have been actively recruiting California residents and businesses with lower income taxes, lower regulatory burdens, and specifically no exit tax threat. The out-migration from California to these states has been documented in IRS data that shows net income leaving California annually for Texas, Arizona, and other lower-tax states. The exit tax proposal is partly a response to this migration, attempting to capture some of the value that the state views as having been produced in California before departing. The problem with this logic is that it treats California’s tax and regulatory environment as the fixed constraint and human mobility as the variable to be managed, when the more effective response would be to treat human mobility as the signal that California’s tax and regulatory environment is producing outcomes that make exit preferable to continued residence, and to address the conditions that are driving the migration rather than taxing the migration itself.

The exit tax debate also reveals the underlying tension in California’s political economy between the interests of existing residents and institutions — who benefit from the services the state provides and want to fund them at current levels — and the interests of mobile capital and skilled workers — who are responsive to the net benefit calculation of remaining in California versus relocating. The exit tax is, in this framing, an attempt to resolve this tension by making exit more expensive rather than by making the net benefit of remaining more attractive. The libertarian critique is that this approach treats the constraint as the variable to manage rather than addressing the underlying conditions that are making exit attractive, which is the characteristic error of governments that respond to the symptoms of policy failure by making it harder to respond to the policy failure.

For California tax and freedom analysis: Bohiney Magazine and The London Prat.

The fundamental question for California’s future is whether the state’s political institutions can produce the reforms that would allow it to retain the people, the enterprises, and the economic dynamism that have made it extraordinary, or whether the regulatory and fiscal burden will continue to produce the exit that the exit tax is designed to prevent rather than address. The libertarian answer is clear: reduce the burden, reform the regulation, and trust that people who are free to stay and free to go will stay when the conditions justify staying. California has everything else. The question is whether it can develop the political will to fix what it has broken.

SOURCE: https://bohiney.com/