In June, Elon Musk became the world's first trillionaire when SpaceX began trading on the Nasdaq. Now, the U.S. midterms are here, and wealth taxation is on the ballot.
Californians are set to vote on Proposition 40, which would take 5% of fortunes above $1 billion, once, and send nine-tenths of the revenue to fund California’s Medicaid program. A swarm of Silicon Valley billionaires, including Google co-founder Sergey Brin, has spent more than $333 million campaigning against the potential tax, warning it will backfire and push the wealthy to flee the sunshine state.
Such reactions are not new. Even the income tax once looked like an assault on property. The Supreme Court struck one down as unconstitutional in 1895, and it took the 16th Amendment in 1913 to make it ordinary. Taxes on great fortunes may travel the same road and become unremarkable within a decade. Plus, research indicates that the wealthiest households often pay lower effective tax rates than the people who work for them.
I support Proposition 40. But it is not sufficient in addressing the underlying economic issues at hand.
A wealth tax like Proposition 40 tries to recover a share of value long after that value has been created, compounded, and defended. By then, the money has lawyers. Which is why the origins of this extreme wealth matter, now that the prospect of redistribution has so agitated the people holding it.
To understand how these systems work, think of the iPhone. As I argued in my book The Entrepreneurial State, the iPhone's foundational technologies came from public research: the internet, GPS, the touchscreen, and the voice recognition behind Siri. Speech understanding research at Carnegie Mellon, MIT, and Stanford Research Institute was funded by the Defense Advanced Research Projects Agency (DARPA) in the 1970s. Researchers then spent two more decades on language and learning systems no company would finance, because the payoff lay thirty years out.
Or think of Google. The search algorithm that made Brin's fortune grew out of a National Science Foundation project at Stanford.
And then there’s SpaceX, whose listing made Musk a trillionaire, took $396 million from NASA to develop the Falcon 9 and the Dragon capsule, then $1.6 billion to fly cargo to the space station and $2.6 billion to fly astronauts. The world’s richest man was also the biggest political donor this election cycle, spending $366 million supporting Republican causes.
Other people see them as tech bros. I see them as a brologarchy. They surfed off publicly financed research to earn enormous rents, and continue to profit off of them through what I call “algorithmic rents”: returns from owning the platforms, data, and models the rest of us must pass through, and manipulating what our “attention” sees.
None of this takes anything away from the entrepreneurs. Turning a research program into a reusable rocket is hard. The public carried the risk in the years when these technologies had no market and no buyer. The state carries the blame: for not setting out, in the contracts, the terms of that initial investment and a fair share of the rewards for the risk the public took.
The Department of Energy made the asymmetry explicit in 2009, issuing two near-identical loan guarantees to two of Musk’s companies: $465 million to Tesla and $500 million to Solyndra. Solyndra, a now-bankrupt solar panel manufacturer, collapsed two years later, and the taxpayer absorbed the loss and the political damage. Tesla, by contrast, succeeded. Under its loan agreement, the government held warrants it could exercise only if Tesla failed to repay on schedule; Tesla repaid nine years early and the warrants lapsed. The public took the downside on one deal and wrote itself out of the upside on the other.
Economists call this socializing risk and privatizing reward. It describes a contract drafted without the confidence to ask for anything.
NASA once had that confidence. In the early 1960s, it moved Apollo contracts from cost-plus-fixed-fee to incentive contracts tying a contractor's fee to cost, schedule, and performance, setting terms rather than writing blank checks. More recently, the CHIPS and Science Act attached conditions to $52.7 billion of semiconductor funding, covering where plants get built and what jobs they create.
I believe those conditions did not go far enough. Wage standards covered laborers and mechanics rather than every worker, and affected communities got no formal seat in the decisions. But the principle is American, recent, and bipartisan. Public money can come with terms.
This is called “pre-distribution,” shaping how value is created and shared at the outset, rather than waiting for the tax code to repair the damage, and it is a crucial principle for making capitalism work for us all.
But establishing this kind of capitalism requires that we commit to another principle: access for all and reward sharing. If the public carries the risk, it should hold a claim on the reward. In practice, that means equity stakes in companies built on public loans, royalties on patents from publicly funded research, and a public fund that recycles the returns into the next round of risk. The United States has started to embrace this philosophy in its semiconductor infrastructure funding. It could do the same for our public investments in artificial intelligence, and those contracts are still being written.
These principles address our broader capitalist system and create a different framing from universal basic income, which many tech billionaires are quite fond of. A basic income leaves the origins of their fortunes untouched, treats wealth as given, and asks only for a transfer, which is why it can be endorsed without conceding anything. A citizens' dividend changes the logic, because it pays out on the grounds that the public helped create the value in the first place. That is a debt owed directly, not only through the tax code. And we know it is possible. Alaska has paid its residents a dividend from oil revenue since 1982.
None of this is an argument for voting against Proposition 40. California's billionaires should pay, and the state's health system needs the money. But a one-time levy collected decades after the fact is a costly way to claim a return that could have been written into the contract at the start. Redistribution settles old accounts. Pre-distribution can redesign an economy from the outset for more inclusive, sustainable growth.
It matters that we act now. The next fortune is being built right now, on public research, with public money; we should make sure it serves the common good.
An economy is not weather, a natural phenomenon that cannot be designed differently or more fairly. It is a set of contracts, and we are the ones who write them. We can write them for an economy designed with people and for them, one that shares the knowledge and the rewards along the way. The common good economy provides the principles through which to achieve this.
