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California’s billionaires tax isn’t the solution, budget expert says. He blames a ‘perfect storm of craziness’ for this populist climate

Published

3 hours ago

January 17, 2026

California’s proposed wealth tax is coming in for a lot of criticism these days. From Gov. Gavin Newsom, who counts many billionaires as friends and donors and yet was raised by a single mother juggling three jobs, to Anduril founder Palmer Luckey‘s vociferous objections, to the Google guys Larry Page and Sergey Brin voting with their feet, much of the Golden State’s ultrawealthy is objecting to this policy. But what if the policy wouldn’t even work that well, once implemented? That’s what budget expert Kent Smetters thinks.

The Wharton School professor and faculty director of the Penn Wharton Budget Model (PWBM), speaking to Fortune from his office in Philadelphia, recently argued that the measure is an inefficient revenue tool born from a “perfect storm of craziness” in the current economic and social climate that makes “populist” ideas like this so sticky. As the state grapples with a significant budget shortfall, Smetters warns that taxing the ultrawealthy would simply fail to provide the expected windfall. Blame behavioral economics and “the money illusion,” he said.

Smetters’ PWBM is widely used in Washington DC to analyze the fiscal and macroeconomic effects of federal policy proposals. And he brings a lot of Beltway policy chops to the role, with a background that includes serving as an economist at the Congressional Budget Office and as Deputy Assistant Secretary for Economic Policy at the U.S. Treasury. He has advised Congress on dynamic scoring, and policymakers from both parties consult him while drafting major tax and spending legislation. Smetters has described much of the PWBM’s work as private analysis, even a “sandbox,” for legislators to workshop ideas before bills are written. He lives and breathes economic policy.

According to Smetters, the primary issue with wealth taxes is that they rarely meet revenue expectations. “When you think about the wealth tax itself,” he told Fortune, “it’s not really a super efficient way of raising money over time, and it also often doesn’t actually raise as much revenue as people think.” He noted that many countries that adopted a wealth tax “gave up on it, partly just because it raised a lot less revenue than what they were thinking.”

Examples are legion of countries abandoning wealth-targeted taxes, from Austria in 1994 to Denmark and Germany in 1997, to France in 2018. As of June 2024, only four countries in the OECD had a wealth tax, and the U.S. does not have any on the books; it’s unclear whether any would be constitutional. Smetters noted that almost all repealed wealth taxes raised an amount less than or equal to 0.3% of GDP, often much less, showing his point that there just isn’t as much money in them as people think. Also, the administrative costs were high relative to revenue, especially due to asset valuation and avoidance. Noting that most repeals were permanent, not experimental reversals, he said France was an exception, replacing a general wealth tax with a narrow real-estate tax.

Smetters cited some PWBM research that asked the question: what would happen if it were illegal to be a billionaire, as some far-left figures such as Zohran Mamdani have previously suggested. If the federal government seized every dollar from every individual above $999 million at current market value, the resulting “wealth grab” would only fund the federal government for about seven to eight months, he said. “What people don’t realize is [there’s] just not as much money there as people think.”

A Different Path Forward

Instead of “jacking up” income taxes or implementing a wealth tax that targets illiquid assets—such as sports teams or startups—Smetters suggested that California could do with “broader participation in tax revenue,” recommending that the state consider more stable, broad-based options like a large sales tax or a value added tax (VAT). Without such discipline, Smetters warned that the state’s reliance on a highly progressive and volatile tax system will continue to leave it vulnerable to economic shifts.

Some progressive policy analysts and economists argue that PWBM, under Smetters’ direction, builds in assumptions that overstate the growth costs of deficits and taxes while understating the benefits of public investment, which they claim biases the model against expansive social spending.. If anything, Smetters argues, the PWBM does the opposite. Critics argue this biases PWBM’s results against expansive social spending, whereas Smetters offers examples of spending that grows the economy if designed well, including investments in pre-K education, healthcare, the environment, and some public goods. PWBM analysis also shows that, contrary to popular opinion, more high-skill immigration generally raises all wages, including for native-born workers.

Smetters said that he has a free-market bias somewhat, in the sense that he jokingly calls himself “80% libertarian,” meaning he generally thinks free market principles are the most effective at increasing human welfare, with some regulatory exceptions including pollution control and some human capital investments, especially at younger ages. In contrast, a lot of government spending today goes higher-income and older people.

Could the economy actually be harmed, Fortune asked Smetters, if the massively improved standard of living means that life is full of annoying, hidden expenses, prompting a widespread dissatisfaction with the economy and a populist thirst for wealth taxes? Smetters noted that even some conservative economists such as Milton Friedman and Martin Feldstein (his own dissertation advisor), had a very strong free-market orientation, “but they would basically agree that markets work well when you don’t deceive people and exploit people.”

A ‘Perfect Storm of Craziness’

When asked why he thinks there is such a push for a billionaires tax at the moment, Smetters described what he saw as a “perfect storm of craziness” involving the rise of artificial intelligence (AI) and the influence of social media. The concentration in the S&P 500 is one thing, he said, with only 10 companies at the top really driving all the gains in the three-year bull market since ChatGPT was released, and an existential fear (driven on by tech billionaires) about AI coming to replace everyone’s job. Smetters said this was making people “unnecessarily anxious” that “we’re getting replaced by robots and so forth.”

Standing in front of a row of terminals working away on his budget analyses, Smetters insisted that “the reality is that AI is not going to be that as impactful as people think.” Pointing at the computers all around him, he noted, “I literally have models running right now, and so I am a big user of AI,” but many were “probably embellishing how much impact it’s going to potentially have.” He distinguished between the two types of technologies: labor-augmenting versus labor-replacing, insisting that AI would be the former.

The economist cited a well-known phenomenon in behavioral economics known as the “money illusion,” where people don’t believe that they have, in fact, actually gotten richer because they are shocked by higher prices they see around them. “The reality is that, in fact, we have a much higher standard of living than we had even 20 or 30 years ago,” Smetter said. He allowed that much of this is poorly measured, and some goods are even priced at zero. “I’m not saying there’s no problems,” he allowed, but he said it’s a much different world from when he was growing up, and his low-income family had to budget for, say, their car breaking down every so often.

There’s a similar, wider money illusion at work around American debates over who should be taxed and how much. “What people don’t realize is just how progressive the United States income tax system is,” he said, describing it as “by far” the most progressive in the OECD, meaning that the wealthy pay a disproportionate amount of tax in the U.S. and the poorer you are, the less you pay, at times even a negative tax burden due to programs like the earned income tax credit. It’s also true, he noted, that the U.S. raises a lot less revenue from its tax system than many other OECD counrties. “You know, it’s really hard to raise a lot of revenue with with such a progressive tax system … This whole idea of who pays taxes and the debates about it, it’s actually a very American debate.”

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Business

Iran’s supreme leader concedes thousands killed in unrest

Published

7 minutes ago

January 17, 2026

Jace Porter

Iran’s Supreme Leader Ayatollah Ali Khamenei on Saturday said “several thousand people” died in this month’s anti-government demonstrations, his first acknowledgment of the deadly scale of the unrest.

Some of those were killed “brutally and inhumanely,” Khamenei said without offering detail in a public meeting broadcast on state TV. He accused the US and Israel of aiding the killings and said the Islamic Republic has evidence to support the claim.

Iran doesn’t intend to push the country toward war, but won’t allow either domestic or international criminals to go unpunished, Khamenei said.

He said US President Donald Trump was culpable for “deaths, damage, and accusations he has inflicted on the Iranian people,” and that Washington’s broader policy goal was to place Iran under military, political, and economic domination.

The toll suggested by Khamenei was in line with estimates from human rights groups and others that some 3,500 people had perished. The groups estimate that more than 22,000 people have been detained.

Trump told Politico that Iran needs new leadership and said Khamenei is guilty of “the complete destruction of the country and the use of violence at levels never seen before.”

The protests have taken place during a record long internet blackout for Iran’s population of about 92 million people.

Earlier, local media reported that internet connectivity had been partially restored, even as most residents appeared to remain largely cut off from the outside world for a ninth day.

Iran’s government shut down internet and mobile phone services on Jan. 8 to quell rising unrest sparked by a currency crisis late last month.

“Internet access has now been restored for some subscribers,” the semi-official Mehr news agency said without specifying which restrictions had been lifted or whether users had regained access to international platforms and services.

The semi-official Fars news agency also reported that mobile text messages had been reactivated after being blocked earlier.

The internet traffic monitoring group NetBlocks said there had been a “very slight rise” in connectivity on Saturday, adding that overall access remained at about 2% of normal levels, with “no indication of a significant return.”

Users in Iran appeared largely offline as of early Saturday afternoon local time, with few signs of activity evident on platforms such as Telegram, Instagram, and X — services they previously accessed via virtual private networks (VPNs).

Near‑total communications blackouts have become a familiar tool for Islamic Republic authorities during critical situations, from this month’s nationwide protests to the June conflict with Israel. That’s cut off much of the population from the global internet, and diverted users onto a government‑controlled domestic network that operates independently of the wider web.

NetBlocks on Friday said the current blackout had surpassed the internet shutdown imposed during the country’s 2019 protests.

Earlier on Saturday, Fars cited authorities who weren’t identified as saying that internet and other communications services were being gradually restored, but that some restrictions would remain in place “as long as security conditions require.”

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Business

Trump launches trade war vs. NATO after European countries sent troops to Greenland

Published

37 minutes ago

January 17, 2026

Jace Porter

President Donald Trump escalated his campaign to gain control over Greenland after several European countries deployed troops to the semi-autonomous Danish territory.

In a social media post on Saturday, he said Denmark, Norway, Sweden, France, Germany, the United Kingdom, the Netherlands, and Finland will be hit with a 10% tariff starting on Feb. 1 that will rise to 25% on June 1, unless “Deal is reached for the Complete and Total purchase of Greenland.”

The announcement came after those NATO allies sent troops to Greenland this past week, ostensibly for training purposes, at the request of Denmark.

European officials have said it was meant to show they’re serious about security in the Arctic as Trump claims China and Russia are threatening Greenland, and not to defend against a possible U.S. attack. But Trump alluded to the troop deployment in his post Saturday.

“On top of everything else, Denmark, Norway, Sweden, France, Germany, The United Kingdom, The Netherlands, and Finland have journeyed to Greenland, for purposes unknown,” he wrote. “This is a very dangerous situation for the Safety, Security, and Survival of our Planet. These Countries, who are
playing this very dangerous game, have put a level of risk in play that is not tenable or sustainable.”

Trump has consistently refused to rule out using the U.S. military in his Greenland plans, while the administration has also left open the possibility of buying the island.

That’s despite estimates that extracting oil and rare earth minerals from Greenland would cost $1 trillion and take decades to yield any returns.

Trump’s latest post suggests he’s leaning toward leveraging trade relations for a purchase rather than conquering Greenland with troops and Navy ships.

A White House meeting with officials from Denmark and Greenland failed to result in any diplomatic breakthrough with the administration refusing to budge on its stance.

While Greenland has offered the U.S. military and commercial access, Trump has insisted that only an outright takeover can secure the island and ensure national security.

“The United States has been trying to do this transaction for over 150 years. Many Presidents have tried, and for good reason, but Denmark has always refused,” he said on Saturday. “Now, because of The Golden Dome, and Modern Day Weapons Systems, both Offensive and Defensive, the need to ACQUIRE is especially important.”

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Business

Justice Department investigates Minnesota’s Walz and Frey, who call it a bullying tactic

Published

1 hour ago

January 17, 2026

Jace Porter

The Justice Department is investigating whether Minnesota Gov. Tim Walz and Minneapolis Mayor Jacob Frey have impeded federal immigration enforcement through public statements they have made, two people familiar with the matter said Friday.

The investigation, which both Walz and Frey said was a bullying tactic meant to threaten political opposition, focused on potential violation of a conspiracy statute, the people said.

The people spoke to The Associated Press on condition of anonymity because they were not authorized to discuss a pending investigation by name.

CBS News first reported the investigation.

The investigation comes during a weekslong immigration crackdown in Minneapolis and St. Paul that the Department of Homeland Security has called its largest recent immigration enforcement operation, resulting in more than 2,500 arrests.

The operation has become more confrontational since the fatal shooting of Renee Good on Jan. 7, with agents pulling people from cars and homes and frequently being confronted by angry bystanders demanding they leave. State and local officials have repeatedly told protesters to remain peaceful.

In response to reports of the investigation, Walz said in a statement: “Two days ago it was Elissa Slotkin. Last week it was Jerome Powell. Before that, Mark Kelly. Weaponizing the justice system and threatening political opponents is a dangerous, authoritarian tactic.”

U.S. senators Kelly, from Arizona, and Slotkin, from Michigan, are under investigation from the President Donald Trump administration after appearing with other Democratic lawmakers in a video urging members of the military to resist “illegal orders.” The administration has also launched a criminal investigation of Powell, a first for a sitting federal reserve chair.

Walz’s office said it has not received any notice of an investigation.

Frey described the investigation as an attempt to intimidate him for “standing up for Minneapolis, our local law enforcement, and our residents against the chaos and danger this Administration has brought to our streets.”

The U.S. attorney’s office in Minneapolis did not immediately comment.

In a post on the social media platform X following reports of the investigation, Attorney General Pam Bondi said: “A reminder to all those in Minnesota: No one is above the law.” She did not specifically mention the investigation.

State calls for peaceful protests

With more protests expected in the Twin Cities this weekend, state authorities urged demonstrators to avoid confrontation.

“While peaceful expression is protected, any actions that harm people, destroy property or jeopardize public safety will not be tolerated,” said Commissioner Bob Jacobson of the Minnesota Department of Public Safety.

His comments came after Trump backed off a bit from his threat a day earlier to invoke an 1807 law, the Insurrection Act, to send troops to suppress demonstrations.

“I don’t think there’s any reason right now to use it, but if I needed it, I’d use it,” Trump told reporters outside the White House.

A U.S. judge in Minnesota ruled on Friday that the federal officers working in the Minneapolis-area enforcement operation can’t detain or tear gas peaceful protesters who aren’t obstructing authorities, including when they’re observing agents.

The case was filed before Good’s shooting on behalf of six Minnesota activists represented by the American Civil Liberties Union of Minnesota.

Government attorneys had argued that the officers have been acting within their legal authority to enforce immigration laws and protect themselves. But the ACLU has said government officers are violating the constitutional rights of Twin Cities residents.

Detention whiplash

A Liberian man who has been shuttled in and out of custody since immigration agents broke down his door with a battering ram was released again Friday, hours after a routine check-in with authorities led to his second arrest.

The dramatic initial arrest of Garrison Gibson last weekend was captured on video. U.S. District Judge Jeffrey Bryan ruled the arrest unlawful Thursday and freed him, but Gibson was detained again Friday when he appeared at an immigration office.

A few hours later, Gibson was free again, attorney Marc Prokosch said.

Gibson, 37, who fled the civil war in his West African home country as a child, had been ordered removed from the U.S., apparently because of a 2008 drug conviction that was later dismissed. He has remained in the country legally under what’s known as an order of supervision, Prokosch said, and complied with the requirement that he meet regularly with immigration authorities.

In his Thursday order, the judge agreed that officials violated regulations by not giving Gibson enough notice that his supervision status had been revoked. Prokosch said he was told by ICE that they are “now going through their proper channels” to revoke the order.

911 caller: Good was shot ‘point blank’

Minneapolis authorities released police and fire dispatch logs and transcripts of 911 calls related to the fatal shooting of Good. Firefighters found what appeared to be two gunshot wounds in her right chest, one in her left forearm and a possible gunshot wound on the left side of her head, records show.

“They shot her, like, cause she wouldn’t open her car door,” a caller said. “Point blank range in her car.”

Good, 37, was at the wheel of her Honda Pilot, which was partially blocking a street. Video showed an officer approached the SUV, demanded that she open the door and grabbed the handle.

Good began to pull forward and turned the vehicle’s wheel to the right. Another ICE officer, Jonathan Ross, pulled his gun and fired at close range, jumping back as the SUV moved past him. DHS claims the agent shot Good in self-defense.

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