The tax that starts with billionaires… the pattern from 1969 and 1913… why your portfolio faces risk either way… Luke’s government-backed opportunity launching tomorrow
Well, that didn’t take long…
At the start of the month, as our analysts were unveiling their 2026 predictions for the market, I made one of my own…
This year will bring a wave of new, controversial legislative proposals aimed at investment wealth – proposals that may not pass immediately, but will introduce a new layer of policy risk investors will have to price in.
Behind my prediction was our ever-widening K-shaped economy.
In the K’s upper spoke, Americans with assets are watching their net worths soar as the stock market and home prices keep rising.
But in the K’s lower spoke, Americans without assets face high retail prices and paychecks that aren’t keeping up with inflation.
The gap between these two groups is at historically wide levels. Data from the Federal Reserve shows that the top 1% of households own 31.7% of all U.S. wealth. This is the highest share on record since the Fed began tracking it in 1989.
History shows that large and persistent economic splits don’t stay contained. Over time, they tend to produce policy responses. That was the basis for my prediction.
With that context, let’s jump to CNBC from last week:
The Billionaire Tax Act, which is currently collecting signatures to be added to the November ballot in California, proposes a one-time 5% tax on the total wealth of residents with $1 billion or more in net worth.
The tax would apply to California residents as of Jan. 1, 2026.
Now, to be fair, California’s Billionaire Tax Act was first proposed last fall. But last week brought fresh momentum as signature gathering officially kicked off for the November ballot.
The threat to non-billionaires
You say you’re not a billionaire, so you have nothing to fear?
Fair enough. But let’s flesh it out a bit deeper.
President Trump’s AI and crypto czar, David Sacks, had a blunt assessment of California’s proposal during an appearance on CNBC’s “Squawk Box” from Davos last week:
This is not a tax, this is an asset seizure.
Never been anything like this before in American history.
Then, he added the critical point:
It’s not a one-time, it’s a first time.
And if they get away with it, there’ll be a second time and a third time.
Does Sacks have a point here? Perhaps one suggests all of us non-billionaires might eventually be impacted by such a proposal?
History suggests “yes.”
The pattern of tax proposals starting narrow and expanding wide is one of the most reliable dynamics in American fiscal history.
An expensive walk down memory lane
Consider the alternative minimum tax (AMT).
When Congress created the AMT in 1969, it targeted exactly 155 wealthy households that had used deductions and loopholes to pay zero federal income tax despite earning substantial incomes.
The legislation was sold as a “fairness” measure – a way to ensure the ultra-wealthy paid their “fair share.”
Sounds reasonable, right?
Fast forward to 2017, just before the Tax Cuts and Jobs Act reformed the AMT. By that point, the tax was hitting roughly 5 million households – many of them solidly middle class.
That’s a 32,000X expansion from the original 155 households it was designed to target.
How did this happen?
Easy. The AMT wasn’t indexed for inflation in its early decades. So, as wages rose with inflation, more and more “ordinary” Americans found themselves caught in a tax designed for the ultra-wealthy.
Our government loved the revenue, so it did nothing to curb the scope creep.
“Whatever, Jeff – my wages are nowhere close to getting me to billionaire status. So, I’m still unconcerned. Tax away.”
Before you land there, let’s revisit the federal income tax itself.
When first introduced in 1913, it applied only to the top 3% of households. The top marginal rate was 7% on income over $500,000 (roughly $15 million in today’s dollars).
It was explicitly sold as a tax on the wealthy.
Within a decade, rates had climbed to 77%. By World War II, the top rate hit 94%, and the tax base had expanded dramatically to include middle-class workers.
Today, roughly 59% of American households pay federal income tax.
So, what started as a “millionaire’s tax” became the primary funding mechanism for the federal government.
Bottom line: Tax proposals aimed at “the rich” expand downward over time.
Either through bracket creep, inflation-indexing failures, or outright legislative changes, the definition of “wealthy” is often revised to capture more taxpayers and generate more revenue.
“Jeff, I still don’t care. There won’t be enough scope-creep to affect me in my lifetime. Make those billionaires pay their fair share!”
Okay, one more wrinkle…
How this proposal could affect all of us – immediately
Let’s assume, for the sake of argument, that California’s billionaire tax stays exactly as proposed – a one-time 5% levy on residents with $1 billion or more in net worth.
There’s still a significant problem for the broader market – which means you and me…
This is a tax on paper wealth, not income.
Most billionaires don’t have $50 million sitting in cash to write a check to Sacramento. Their wealth is tied up in stocks, real estate, private company equity, and other illiquid assets.
To pay a 5% wealth tax, many would need to sell assets.
So, when you’re talking about liquidating billions of dollars in holdings – potentially in a compressed timeframe to meet tax deadlines – that creates downward pressure in the market, which can directly impact your portfolio value.
But it’s bigger than that…
If the California wealth tax passes and generates big revenues, you can be certain you’ll see the same thing in New York, Massachusetts, Washington, and other blue states with large concentrations of wealth.
Suddenly, you’re looking at forced asset sales from billionaires across multiple states, all trying to raise cash to pay wealth taxes. Stocks are the easiest assets to sell, which – again – means a major headwind for equity markets. And it introduces a new layer of uncertainty for investors…
How do you value a company when a significant portion of its largest shareholders might be forced sellers for tax reasons rather than fundamental business concerns?
Do all those Discounted Cash Flow models from the Big Banks now have to back out the equity ownership of billionaire investors?
But now, take it one step further…
What happens if this becomes a repeat wealth tax as David Sachs predicts? (Or rather, “when” it happens?)
What happens when the tax threshold falls from $1 billion to $500 million?
Then $100 million…
$50 million.
How do you price that? What happens if this becomes an institutionalized, yearly headwind of “forced selling” pushing against market gains?
You and me – with our sub-$50-million net worths – will be safe from the tax itself, but our portfolio values won’t be safe from the impact of such wealth taxes.
So, what can we do about it?
The uncomfortable truth is we have little control over whether proposals like California’s billionaire tax will pass.
Given the widening wealth gap I highlighted at the start of today’s Digest, I suspect more legislation like this will eventually pass.
But while we can’t control the legislative environment, we can control our investment strategy. And one of the few things we can do is position our portfolios to generate enough wealth to offset the potential hit we’ll experience – whether from higher taxes directly, or from the market headwinds these policies create.
And that brings us to new research from our technology expert Luke Lango.
Tomorrow, Luke releases his latest research briefing on what he’s calling the most profound economic reorganization in American history since the signing of the Declaration of Independence.
While politicians debate wealth taxes, Luke’s been tracking something far more immediate…
A $500 billion government mobilization that officially launched on November 24th with President Trump’s Genesis Mission executive order.
The three goals?
- Use AI to accelerate energy advancements
- Invest in quantum computing for scientific breakthroughs
- Develop AI for national security
The executive order explicitly compares itself to the Manhattan Project and the Apollo Program.
And if that sounds grandiose, consider what happened last time the government mobilized like this: Companies like DuPont and Boeing delivered gains of 1,844% and 24,400% respectively.
This time, 52 companies have been named to win the AI race against China, with hard deadlines starting February 22nd.
These aren’t trillion-dollar mega-caps. They’re small, obscure names in quantum computing, nuclear energy, and advanced semiconductors.
Here’s Luke with more on the opportunity:
We’ve entered a new era where the U.S. government is no longer just regulating markets… it’s actively partnering with private companies to win an existential race.
The United States is doing what it has always done at pivotal moments in history: mobilizing private industry, clearing regulatory roadblocks, funding winners, and setting hard deadlines to achieve a strategic goal.
By naming its partners and moving money, the government has made its priorities clear.
A perfect example dropped this morning…
USA Rare Earth (USAR) announced that the Department of Commerce will take an equity stake in the company – providing $1.3 billion in loans and $277 million in federal funding.
In exchange, the U.S. government will own 8% to 16% of the company, depending on whether warrants are exercised.
Stepping back, Luke has spent months analyzing this opportunity and has identified what he calls the “6-Layer AI Bottleneck Stack” – the specific choke points where government money will flow and where the biggest gains will be made.
Here’s his quick takeaway:
When unlimited capital chases scarce physical resources, prices go parabolic. The only way to invest in this environment is to own the choke points.
You must own the things that our government cannot build its AI without, and which it currently doesn’t have enough of.
Tomorrow, Luke releases his complete Genesis Mission research briefing with the specific companies positioned at these bottlenecks.
I’ll bring you more details in tomorrow’s Digest.
Wrapping up…
I opened today’s Digest by highlighting my prediction that 2026 would bring controversial legislative proposals aimed at investment wealth.
And just three weeks into the year, that prediction is already gaining momentum in California.
But it’s not alone.
I’ll leave you with this…
- In December, Washington Governor Bob Ferguson proposed the state’s first income tax in modern history – a 9.9% levy on personal income over $1 million.
- Michigan residents could face a ballot initiative this year adding a 5% surcharge on individuals earning more than $500,000.
- Colorado just advanced a measure to change its flat tax rate to a graduated income tax, potentially raising more than $4 billion when it goes before voters in 2026.
- And New York City’s new mayor campaigned on raising the city’s income tax on millionaires by 2 percentage points.
The pattern is already emerging.
We can’t control whether these proposals pass or expand. But we can control how we position our portfolios.
More help from Luke on this tomorrow.
Have a good evening,
Jeff Remsburg
