SEIU Delenda Est
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California lets interest groups propose measures for the state ballot. Anyone who gathers enough signatures (currently 874,641) can put their hare-brained plans before voters during the next election year.
This year, the big story is the 2026 Billionaire Tax Act, a 5% wealth tax on California’s billionaires. Your views on this will mostly be shaped by whether or not you like taxing the rich, but opponents have argued that it’s an especially poorly written proposal:
It includes a tax on “unrealized gains”, like a founder’s share of a private company which hasn’t been sold yet. This could be an existential threat to the Silicon Valley model of building startups that are worth billions on paper before their founders see any cash. Since most billionaires keep most of their wealth in stocks, any wealth tax will need some way to reach these (cf. complaints about the “buy, borrow, die” strategy for avoiding taxation). But there are better ways to do this (for example, taxing at liquidation and treating death as a virtual liquidation event), other wealth tax proposals have included these, and the California proposal doesn’t.
It appears to value company stakes by voting rights rather than ownership, so a typical founder who maintains control of their company despite dilution might see themselves taxed for more than they have. Garry Tan explains the math here with reference to Google. However, Current Affairs has a good article (?!) that pushes back, saying the proposal exempts public companies like Google. Although private companies would still be affected, this would be so obviously unfair that founders would easily win an exemption based on a provision allowing them to appeal nonsensical results. Still, some might counterobject that proposed legislation is generally supposed to be good, rather than so bad that its victims will easily win on appeal.
It’s retroactive, applying to billionaires who lived in California in January, even though it won’t come to a vote until November. Proponents argue that this is necessary to prevent billionaire flight; opponents point out that alternatively, billionaires could flee before the tax even passes (as some have already done). One plausible result is that the tax fails (either at the ballot box or the courts), but only after spurring California’s richest taxpayers to flee, leading to a net decrease in revenue.
Some people propose that it could decrease state revenues overall even if it passed, if it drove out enough billionaires, though others disagree.
Pro-tech-industry newsletter Pirate Wires finds that 20 out of 21 California tech billionaires interviewed were “developing an exit plan” and quotes an insider saying that “if this tax actually passes, I think the technology industry kind of has to leave the state”. Even Gavin Newsom, hardly known for being an anti-tax conservative, has argued that it “makes no sense” and “would be really damaging”.
The ACX legal and economic analysis team (Claude, GPT, and Gemini) doubt the direst warnings, but agree that the tax is of dubious value and its provisions poorly suited to Silicon Valley.
On one level, it’s no surprise that California, a state full of bad socialists, is considering bad socialist policy. But I think this is the wrong perspective. This proposition isn’t being sponsored by some generic group of Piketty-reading leftists. It’s the project of SEIU (Service Employees International Union) a union of mostly healthcare workers.
This immediately clarifies the debate about whether it’s net negative for revenue. 90% of the revenue from the tax is earmarked for health care. So even if it’s net negative for the state, it isn’t net negative for the health care budget in particular, ie for the people who are sponsoring the measure.
But we can get even more conspiratorial. The SEIU is known in California political circles for pioneering and perfecting the art of extortion via ballot initiative. Their usual strategy goes:
Propose a ballot initiative that will sound nice to voters, but which is actually deliberately designed to ruin some industry.
Demand concessions from that industry in exchange for withdrawing the initiative.
Their first extortion attempt (as far as I know) was the 2014 Fair Healthcare Pricing Act, which would have capped the amount hospitals were allowed to charge for procedures at some unsustainable amount. The hospital association seemed to think this was an existential threat:
If the initiatives are approved by the voters, hospitals could not operate as they do now. It would be necessary for hospitals to restructure their business model and services provided. Additionally, hospitals would be faced with unprecedented decisions — “Which services must be eliminated or cutback?”; “How can the hospital operate without departmental cross-subsidization?”; and “How can strategic planning be conducted in a world of oppression and uncertainty?”
Although the hospitals themselves might be biased, the government’s mandatory fiscal analysis of the initiative seemed to agree, saying that “about 20 hospitals would change from having positive operating margins to having operating losses before taking into account any strategies these hospitals might implement in response to the measure.”
But “help” was on the way. The SEIU offered to withdraw its initiative in exchange for a $100 million “donation” from hospital lobby groups to one of SEIU’s pet causes, plus the right to expand their union into the affected hospitals. The hospitals caved and gave them what they wanted. The union was surprisingly frank in their celebration:
[Union leader Dave] Regan said that the SEIU-UHW had spent $5 million on [backing the ballot initiatives], but that it paid off handsomely. “For a $5 million investment, we get an $80 million turn to pursue those things,” Regan said. He observed that the CHA would have spent as much as $100 million to defeat the initiatives.
Buoyed by their success, SEIU identified dialysis clinics as their next target, and demanded similar union expansion rights (I can’t find any information about whether they also wanted more cash). The dialysis clinics refused, and so began one of the most shameful chapters in California ballot history: The Eternal Kidney Proposition. SEIU proposed a 2018 ballot proposition to cap dialysis clinic revenues at some unsustainable level. The clinics spent $100 million fighting it, “the most money raised for a campaign like this in California history”, and it failed.
And then it was back! In 2020, SEIU proposed a new packet of regulations for dialysis clinics, all of which probably sounded reasonable to the average voter but which had the overall effect of making them ruinously expensive to operate. The measures were opposed by the California Medical Association (representing doctors), the American Nursing Association (representing nurses), various patients’ groups, and even the NAACP (black people are especially prone to kidney disease, and would be hardest hit). Once again, the clinics spent $100 million getting the message out, and the Californian public rejected it.
And then it was back again! In 2022, SEIU proposed basically the same packet of regulations. All the same groups lined up against, now joined by the Renal Physicians Association, the Renal Physician Assistants’ Association, the National Kidney Association, and various veterans groups (older veterans are also commonly affected by kidney disease, and would also be hard-hit). After wasting another $100 million dollars, the proposition was defeated a third time.
Somewhere in this process, Californians started to wonder what was going on. One dialysis proposition might be happenstance, two might be coincidence, but three was enemy action. In 2020, media nonprofit CalMatters published Good Policy Or Ballot Blackmail?, trying to spread awareness of SEIU’s extortion attempts. It focuses on SEIU leader Dave Regan’s love of the tactic:
[SEIU] sponsored Proposition 23 on the November ballot, which would add new regulations for dialysis clinics. It put a similar measure before voters in 2018, which they rejected. In the last two elections, it’s also sponsored a measure to tax hospitals in the Los Angeles County city of Lynwood, and to cap prices at Stanford hospitals and clinics in several Bay Area Cities.
And that doesn’t count the many initiatives it began working on by collecting signatures but withdrew before they reached the ballot — including a minimum wage initiative in 2016, a pair of measures to limit hospital fees and executive pay in 2014, and two other initiatives to curb hospital bills and expand charity care in 2012.
All told, these campaigns have cost the union at least $43 million, and resulted in no wins on the ballot in California — though union president Dave Regan says they’ve helped make progress in other ways. The practice has earned him a reputation as an aggressive labor leader who uses the initiative process to needle adversaries in the health care profession as he tries to expand membership in his union.
“Dave Regan has made this into a strategy,” said Ken Jacobs, chair of the UC Berkeley Labor Center, which researches unions […]
And on the opinions of other labor leaders:
“There’s great resentment toward him because of his ‘my way or the highway’ kind of way of dealing with other folks,” said Sal Rosselli, who worked with Regan as part of the larger SEIU umbrella union for many years, but now heads the rival National Union of Healthcare Workers.
Regan’s frequent use of ballot measures is “dishonest with voters,” Rosselli said. “He’s not doing it to improve the quality of health care… He’s doing it to gain leverage over the employers for top-down organizing rights.”
Wall Street Journal agreed, and even the more liberal Los Angeles Times described SEIU’s work as “political extortion”.
Given that all of SEIU’s past progressive-sounding legislation has been thinly-disguised extortion attempts, might this one be as well?
The argument against: SEIU is entirely focused on healthcare and doesn’t care about the tech industry.
The argument in favor: Gavin Newsom cares about the tech industry. And SEIU cares about Gavin Newsom. Governor Newsom has been eyeing the Democratic presidential nomination in 2028. He needs a reputation as a Sensible Moderate and plenty of billionaire donors. And there’s a clear path to the latter - as Silicon Valley tires of Trump’s random acts of economic devastation, some tech leaders are starting to regret their flirtation with right-wing populism and wonder whether the other side has a better offer. If everything goes exactly right, he can make it work. Instead, there’s this wealth tax, coming at the worst possible time. Newsom really, really wants it to go away. So, Politico reports, he’s been meeting with SEIU leader Dave Regan to see what’s on offer:
Gavin Newsom and his staff have quietly talked to the champion of a controversial wealth tax proposal seeking an off-ramp to defuse a looming ballot measure fight.
The conversations, reported here for the first time, have occurred intermittently for months as SEIU-UHW’s ballot initiative targeting billionaires migrated from the backrooms of California politics to the center of a raging debate about Silicon Valley and income inequality, sparking tech titans’ wrath and vows to move out of state.
“We’ve been at this for four months,” Newsom said in an interview with POLITICO, describing an “all-hands” effort that has included him meeting one-on-one with SEIU-UHW’s leader, Dave Regan.
A compromise does not appear imminent. A union official cast doubt on the possibility of a deal, saying the two sides do not currently have another meeting scheduled and framing a ballot fight as an inevitability.
My read: rather than a heartfelt attempt at redistribution, this is a heads-I-win-tails-you-lose gambit by the SEIU. If Governor Newsom offers them enough concessions and bribes, they’ll drop the initiative. If not, they’ll carry it through, maybe win, and get $100 billion in extra health care spending, some of which will flow through to their members. Either way, whatever happens to the rest of the state isn’t their concern.
One critique of capitalism argues that, although in theory it aligns incentives perfectly so that companies should produce things that people want, in practice it also incentivizes the hunt for loopholes: addictive products that can take advantage of seemingly-tiny wedges between what people will buy and what’s good for them. Cigarettes, casinos, payday loans, and social media all demonstrate that these wedges collectively form a multi-trillion dollar niche.
In the same way, SEIU seems to have found a bug in direct democracy: it incentivizes interest groups to search for the most destructive possible ballot initiative that might nevertheless get approved by low-information voters, since this gives them leverage over anyone willing to bribe them into withdrawing their poison pill. Seems like an ignominious end for California’s ballot proposition system.