The dispute over the billionaire wealth tax in California foreshadows a broader debate that Democrats will have in the years ahead. As pressure mounts to tax America’s oligarchs, bold proposals like the wealth tax will likely continue to grow in popularity. This presents a conundrum for the party’s centrists, especially those with higher political ambitions. Newsom’s effort to repackage himself as a kind of pragmatic populist ahead of a likely presidential run offers a preview of how establishment Democrats will attempt to appease the party’s increasingly populist base without alienating the big donors who still finance their campaigns.

If the debate in California is any guide, centrist Democrats will frame their opposition to proposals like the wealth tax in strictly pragmatic terms, focusing on unintended economic consequences or the institutional challenges of enacting such policies. In the Golden State, Newsom and other Democratic critics have mostly argued that the proposal would drive wealthy residents out of the state and thus erode its tax base and long-term revenue. Nationally, the “pragmatic” critique will likely center on the constitutional challenges that a federal wealth tax would inevitably face.

These criticisms are not entirely groundless. It is true, for example, that a state wealth tax would be difficult to administer and that the wealthy are highly mobile, especially at the state level. While narratives about wealthy residents fleeing states due to high taxes are greatly exaggerated — often built on anecdotes rather than hard data, which shows relatively little tax-related migration — the California wealth tax lacks any real historical precedent. Though structured as a onetime retroactive tax to curb avoidance and limit economic fallout, it’s not unreasonable to assume that some of the state’s wealthiest residents will leave if the measure passes (whether that’s such a bad thing is a different question).

While a national wealth tax would be far more difficult for the wealthy to escape by simply packing up and moving, it faces its own serious obstacles. Indeed, a straightforward tax on wealth would almost certainly be struck down by today’s Supreme Court, where conservative justices have indicated they would rule against any “direct tax” that isn’t narrowly construed as an income tax.

These challenges are real and shouldn’t be casually dismissed by wealth tax proponents. At the same time, the ostensibly more “practical” alternatives sold by centrists like Newsom would do little to confront the very problems that proposals like a wealth tax are designed to remedy, from extreme inequality and outsize billionaire power to persistent tax avoidance at the top.

Take the proposal to eliminate the “buy, borrow, die” loophole, which first gained notoriety in 2021 when a ProPublica report revealed how some of the country’s wealthiest men routinely avoided taxable income by taking out low-interest loans backed by their assets. While simply taxing wealth or unrealized gains would automatically render this strategy obsolete, centrist Democrats have rallied around a more technocratic fix that would avoid dramatic changes to the current tax code. The most popular proposal is to simply tax loans as if they were capital gains. In June, another presidential hopeful aiming to occupy the “pragmatic populist” lane, Arizona senator Ruben Gallego, introduced a bill that would treat such loans as “realization events” for those with assets over $1 billion. In theory, this would eliminate the tax incentive to take out loans in the first place.

There are a few issues with this approach. For one, it’s unclear how much better it would actually fare in the courts. According to Brian Galle, a professor of tax law at Berkeley, proposals to tax borrowing would “face constitutional challenges that are not especially different from those facing wealth taxes more generally.” Though Galle argues that it would be constitutional “on the best reading of the existing law,” this wouldn’t prevent the Supreme Court from trying “very hard to find ways to strike it down.”

The bigger problem is that a tax on loans simply wouldn’t raise much revenue from billionaires. Recent research has found that annual borrowing from the wealthiest American households represents just a fraction of their total income when untaxed (i.e., unrealized) earnings are included. “[It] turns out that when you are super-rich you already have enough cash flow to fund most of your private jet and megayacht purchases, even if that is a tiny share of your overall wealth,” noted Galle.

In practical terms, this means that eliminating the loophole would hardly touch the real income of the ultrarich. In a column, Rep. Ro Khanna claimed that a tax on loans would generate just one forty-fourth of what his and Bernie Sanders’s proposed 5 percent wealth tax on billionaires would raise.

If centrist proposals fail because they don’t target the true source of billionaire wealth and power, progressive plans like Sanders and Khanna’s national wealth tax would likely fail for the opposite reason: they target it so directly that the conservative majority on the Supreme Court would rule it unconstitutional.

A truly pragmatic approach would avoid the legal pitfalls of a direct wealth tax while still finding a way to tax the wealth of the ultrarich. For a time, taxing unrealized gains was seen as a somewhat more viable option, since it could be plausibly framed as an income tax. That idea sat at the heart of the Biden administration’s “billionaire minimum income tax,” which applied to households with more than $100 million in assets. Since then, the constitutional prospects of this approach have also dimmed considerably. Galle, who helped craft the Biden proposal, noted that it was developed before a Supreme Court ruling in 2024 where conservative justices signaled they would deem a tax on unrealized gains unconstitutional as well.

In a monograph published earlier this year, Galle outlined a new plan that he argues could sidestep these constitutional hurdles while still meaningfully taxing the ultrarich. Galle’s framework, the Fair Share Tax (FAST), offers a sophisticated work-around to the Supreme Court’s strict interpretation of the “realization rule,” under which only realized gains qualify as taxable income. Rather than taxing wealth or unrealized gains, FAST would tax gains only at realization but impose an additional interest charge equal to the asset’s annual return, making it far more expensive to hold assets indefinitely. As Galle explained to me, FAST would “tax investment assets when they are sold, but [also] adjust the tax rate that individuals pay so that after paying the tax they are left with the same amount they would have held if they had been taxed annually.”

In his telling, this would generate the “revenue and economic effects of a wealth-type tax with the administrative ease and constitutional compatibility of a traditional income tax.”

Under the current tax code, any investment gains that aren’t officially realized during the owner’s life are effectively wiped out at death for tax purposes, leaving heirs with a mostly tax-free inheritance (hence the final step of the “buy, borrow, die” strategy). To eliminate this loophole, known as the “step-up basis” rule, tax experts have suggested treating death itself as a realization event. This could be paired with the replacement of the estate tax with an inheritance tax to be paid by heirs. Galle’s plan would eliminate the step-up basis loophole and pass all the gains made during the life of the investment onto the inheritors, accumulating even more interest over time. He also proposes an additional tax on heirs when they sell their inherited property that would kick in at $15 million in property gains.

Ahead of the 2028 election, a real debate is needed on how to tax the top 0.1 percent in a way that is both effective and workable. With a judicial branch openly hostile to such efforts, the more creative solutions there are on the table, the better. But despite recent proclamations about the dangers of concentrated wealth and spiraling inequality, centrist Democrats like Newsom seem largely committed to symbolic gestures that would do little to curb the power or fortunes of the billionaire class. It falls to the Left to articulate a genuinely pragmatic brand of populism instead.