Biases, Inequities, and Adverse Incentives from Basing Wealth Taxes on Accounting Measures
California’s proposed 2026 Billionaire Tax Act would impose a one-time 5% tax on residents with net worth exceeding $1 billion, using accounting measures to value assets. But valuing wealth presents significant challenges: many private firms don’t maintain GAAP-compliant financial statements, accounting rules treat tangible and intangible assets differently, and illiquid assets like unique real estate and artwork lack objective market prices. This analysis examines the biases, inequities, and distorted incentives that arise from basing wealth taxes on accounting measures.