The election of Zohran Mamdani as New York’s first socialist mayor creates a dilemma for the still historically unpopular Democrats. Some elements of the party – notably those based around the Democratic Socialists of America (DSA) – favour massive redistribution of income from the wealthy, while the traditionally dominant gentry liberals fear a loss of support from the oligarch class (particularly leading figures in industries like tech), who until recently had funded their campaigns.

The front line of this conflict today lies in California, where Democrats traditionally align with the moguls in Silicon Valley and Hollywood. The new breed of Leftists, however, wants to expand the welfare state even as the state economy underperforms. They have no tolerance for billionaires, except as objects of extraction.

To be clear, the “moderate” gentry liberals still favour an ever-expanding welfare state, financed by the top 1pc, who contribute some 40pc of the state’s income taxes. But the Left wants more and aims to get it. In a startling move, a powerful union – the SEIU-United Healthcare Workers West – is working to place before voters a wealth tax that would seek to mine not only the unrealised capital gains of billionaires, but to potentially tax them even when they have left the state.

The proposed initiative would impose a 5 per cent tax on the net worth of billionaires – apparently including everything from investments and property to jewellery and paintings – residing in California, allowing them to pay off the obligation over five years. The revenue would go into a special fund, with 90pc reserved for healthcare spending and 10pc for the state’s failing K-12 education system, sectors dependent on state spending.

Yet California’s regulatory and tax regime are a key reason for a dwindling fiscal base. It is seen in the high rates of migration by the middle class hoi polloi. But now, more of the upper crust are moving. In 2021 alone, the departure of wealthy people cost the state an estimated loss of $20.4bn in taxable income.

Now with the wealth tax looming, several prominent oligarchs, including venture capitalist Peter Thiel, have taken steps to cut ties with California. From his personal acquaintances, venture capitalist Chamath Palihapitiya claims the state has lost $1tn in wealth.

Of course, California and its high tech economy will not collapse. It will likely remain a dominant source of venture capital for growth companies, as the state’s governor Gavin Newsom boasts. But increasingly, as companies mature, they are placing their jobs and sometimes themselves elsewhere.

For gentry liberals like Newsom, long dependent on tech money to finance his pet causes, the departure of the rich poses a particular threat. Newsom already faces a pending budget crisis predicted by the state’s Legislative Analyst Office. In a federal system, California lives in what he calls “a competitive reality with 49 other states”.

Other Democrats, like San Jose’s pragmatic mayor Matt Mahan, have also denounced the scheme as damaging to the Valley, and suggested that Newsom would do better “rooting out” the stupendous levels of outright fraud associated with the state government. Yet the leading Valley politician, Representative Ro Khanna, embraces the wealth tax message even as his constituency is already suffering job losses amid a shift of jobs to other states.

Newsom, and gentry liberals in general, bear great responsibility for a level of inequality in California estimated to be greater than that of Mexico. In particular, they have long embraced draconian climate policies, which have undermined the blue-collar economy, and driven up energy and home prices.

The drive to “save the planet” – and the associated impact on costs – has surely contributed to California suffering the United States’ highest poverty rate and the highest unemployment rate in the country, as well elevated levels of unemployment for people under 30. The Public Policy Institute of California estimates that roughly 15 million people live in poverty or near-poverty.

Once the land of opportunity, in recent years, the only jobs created in California were in government-financed health care and government itself. Newsom may attack states like Texas and Florida as unfair to the poor, yet immigrants seem to be doing better there.

Unable or unwilling to foster broad-based economic growth, Newsom has tried to address the state’s enormous income disparity by building what the Nation praised as “the blue welfare state”. The goal has been to balance a highly unequal economy by lavishing ever greater subsidies on poorer Californians. California spends more of its budget on welfare than virtually any state, twice as much as arch-rival Texas by some measures.

With revenues, and federal funds, now threatened by the movement of people and business to other parts of the US, the Left sees the wealth tax as a way to prop up that “blue” welfare state. This includes paying for such things as health care for undocumented migrants, not insignificant in a state where well over two million live in the netherworld of illegality. And where the foreign-born constitute more than a quarter of the population, the highest rate of any state.

Even with the opposition of Newsom, the wealth tax has natural appeal to Californians and nationwide. This is particularly true as a majority of Democrats, whose nomination he craves, now favour socialism over capitalism.

So California’s battle over a wealth tax could presage the battle for the Democrat 2028 nomination. If the state goes neo-socialist, even against the objections of a self-styled progressive governor, the redistributionist Left may be positioned to win power in a country that once saw itself as a bastion of capitalism.

Joel Kotkin is presidential fellow in urban futures at Chapman University and senior research fellow at the Civitas Institute at the University of Texas

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