Lead-Lag Live

California at a Crossroads: Ethan Penner on Gavin Newsom, Trump, Reform, and Rebuilding the State

• Michael A. Gayed, CFA

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In this episode of Lead-Lag Live, I sit down with Ethan Penner — independent candidate for California governor and a trailblazer in U.S. commercial real-estate finance — to break down what he calls the “collapse of competent governance” in California.

From a radical tax overhaul to fixing housing and energy costs, Penner outlines how he’d reverse decades of political decay — and why he believes Gavin Newsom’s policies have left the state weaker, poorer, and more divided.

In this episode:
– Why Penner says there’s “absolutely nothing” worth continuing from Newsom’s tenure
– How a single-tax system could revitalize California’s economy
– The real drivers of the housing and affordability crisis
– How bureaucratic red tape adds $100K+ to every new apartment build
– Why leadership grounded in empathy and business discipline matters now more than ever

Lead-Lag Live brings you inside conversations with the financial thinkers who shape markets. Subscribe for interviews that go deeper than the noise.

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SPEAKER_01:

And so the way we're going to do that is to initially introduce um half of the consumption tax and reduce all the taxes that we are going to ultimately eliminate by half. And we'll see where we are at the end of that first year. I think he's he's he's failed our state in every single level. He's been, he's your prototypical um career politician who literally knows nothing.

SPEAKER_00:

Now, California is bleeding citizens, high taxes, crushing regulation, and a cost of living that just keeps rising. Many residents and businesses are leaving for states with lighter burdens. This California exodus reflects a deeper problem. When the fiscal model falls, the infrastructure of growth crumbles. Into that void, steps Ethan Penner, an independent gubernatorial candidate whose resume includes pioneering work in commercial real estate, finance, and in capital markets. In September, he unveiled a radical tax reform plan replacing California's patchwork of income sales, excise estate, and gift taxes with a single 15% consumption tax. Ethan, thanks so much for being here with me. So let's start uh pretty direct. Your tax plan is it's bold, replacing virtually every major state tax with one consumption tax. How do you defend it against accusations that it favors high spenders over savers and that it could have a it could that it could destabilize state finances if if the revenues fall short?

SPEAKER_01:

Well, um those are all great questions, but let me start with the word bold because you used that in your in your intro. And I think that it it is bold, and our state requires bold initiatives. We need change. As you said, uh California is failing. We're getting our butts. All we have to do is go back to the 19th century.

SPEAKER_00:

Not better state. So what of course already managed so far in the last few years. And we said that raising rates behind. Some nominal rates went up a lot. During that decade is a great example.

SPEAKER_01:

Intelligent design, which we have as a system in California for as long as I could remember. The answer to your question, of course, is very important because government, and first of all, a society that doesn't care for its most vulnerable citizens is a society that's doomed to fail. So a tax plan can't favor the wealthy because they're already doing very well. It has to do, a tax plan has to invigorate an economy and do so in a manner that doesn't harm but actually helps citizens who are trying to make it. And that's the majority of Californians. So my tax plan does that. My tax plan is set up to excite and attract dreamers and people who have ambitions for building companies. Uh, and that will create abundance in our state. It will create jobs uh for everybody, it'll create immense opportunities, and it will grow our tax base, not shrink it. That will enable us to invest in all the things that we need to invest in as a state to ensure that everything's run first class here, which is not the case today. We have a shrinking tax base, and we have a shrinking tax base because the producer class feels um kind of unable to fulfill their dreams and their ambitions and are moving elsewhere, particularly to places like Texas. Specifically, though, my uh, you know, consumption taxes have historically been criticized as being something that is um repressive in the sense that it uh it punishes the people who are making less money. And so to specifically counteract that, my plan includes what we call a pre-bate. So at the beginning of every year, people that are making less income are going to receive a check from the state government that would equal a percentage, uh depending upon where they fall in the kind of income category, but uh receive a check up front that aims to cover for the people at the lowest end 100% of what that consumption tax would uh be for them. So they would essentially live tax free, which they're not living tax-free today. The people at the lowest end are actually paying some sales tax, and especially this horrible gasoline tax. So we'll eliminate that for them and they'll actually be better off. And then as we move up the food chain from the people who are making, let's say, the lowest level of income up towards what I guess I would call really middle class, there are still going to be some benefits they receive in the form of a check from the state government to offset the consumption tax or part of the consumption tax so that they're not inadvertently worse off than they are today. Our goal is to make sure that the people that are in the lower levels of income that are trying to make it and working so hard are better off, not worse off as a result of this tax plan.

SPEAKER_00:

Right, Ethan. And you're talking about uh like you said the word bold, I said the world word bold. It's a huge shift. What transitional safeguards are you going to embed so that local services, uh, school infrastructure, etc.

SPEAKER_01:

don't feel like that. Of course, so we we must transition in a gentle way to ensure that we don't stumble and fall. And so the way we're gonna do that is to initially introduce um half of the consumption tax and reduce all the taxes that we are gonna ultimately eliminate by half. And we'll see where we are at the end of that first year with regards to collections. And assuming we're where we think we'll be, we'll go ahead and cut it again in half and increase the consumption tax again in half. And by the third year, assuming all is as we expect it to be and we're meeting our budgetary needs amply, we'll by the end of the third year be able to transition fully to the consumption tax with the full elimination of all the taxes that we're aiming to eliminate. So it'll be done in a gradual and thoughtful manner to ensure that we don't stumble and fall.

SPEAKER_00:

Okay, Ethan. And I I want to move on from taxation, as I I said in on my intro, there's quite a few issues happening uh in the state. And and some would argue that migration is is driven by housing costs, regulation, crime, et cetera. How how do you isolate the tax policy's role versus these other factors? And how do you prove your plan can reverse uh the people that are migrating out of some of the people?

SPEAKER_01:

Well, you know, Melanie, you're a hundred percent right. The tax plan is kind of a um a headline grabber, right? It's the one that's gonna say, you know, California is open for business. California has an intelligent rather than a penalizing tax plan. And the tax foundation, as I think you probably know, has already ranked my tax plan third in the nation behind only North Dakota and Wyoming, which are, which are obviously very small states. So as far as the large states go, we would be the best tax plan in the country from our current position of 48th in the nation. So that headline grabber is going to be the magnet that I think causes people to pay attention and causes companies to return and grow in the state of California. But you're right when you say that's only one part of what needs to be done in order to correct all the things that need to be corrected in our state. Affordability, and it's not just housing, but it's housing. Let's start with housing. Housing affordability is a major, major problem. And I would say the primary cause of that problem, perhaps almost the only cause of that problem, is a supply-demand imbalance. And our supply-demand imbalance is well kind of covered in a white paper that was done just this past year by the Rand Corporation, which pointed out that it costs more than$100,000 extra to build an apartment unit in the state of California than, for example, in the neighboring state of Arizona. So we're creating crazy barriers. And most of that$100,000 premium has to do with red tape and bureaucracy, waiting time, filing costs, permitting costs, all that kind of stuff, legal costs associated with that. It takes two to four years to get approvals to build an apartment. In the state of Texas, where they have um by right um uh statues, it takes two to four weeks to get the same approval. That is a repellent for developers, and they're and as a result, we don't have enough supply. And it's a simple supply-demand problem. So we will fix that in the state of California by streamlining the approval processes without sacrificing any of the environmental protections that we need to have in California and that every state needs to have, but perhaps more so in California because of our beautiful environment. But we can do that without creating this crazy bureaucratic red tape process that adds so much cost and repels developers. So that would be how we fix housing. There's other issues on affordability, primarily around energy costs. Gasoline costs are way higher than the rest of the country. And home utility costs are way higher. These things are fairly easy to fix, and we will fix them.

SPEAKER_00:

Yeah, and I wanted to uh dive a little bit deeper into the construction. I know that red tape is definitely uh causing issues, but also, you know, in relation to immigration, some people would say that immigration and label aren't really central in your platform or they're they're sort of mentioned in passing. Given how vital immigrant labor is to these key industries, construction as one, caregiving, agriculture, et cetera. What's your realistic plan for immigration enforcement that doesn't throttle the economy?

SPEAKER_01:

Oh, well, first of all, I I would like to decouple those two kind of uh what you what you've coupled, I think deserves to be decoupled. I don't view immigration as an issue that is economic. I view uh immigration right now uh as an issue that is humane and ethical. So there isn't ultimately a discussion about economics, but not at this moment. So let me first start by saying the neighboring states like Arizona, while they have um immigrants, they're still developing properties at$110,000 per unit cheaper than we are. Uh, and it has nothing to do with immigration policy. It's just that's pure bureaucratic red tape. And and the RAND corporation's white paper illustrates that quite well. As far as immigration goes, you're right. I don't spend a whole lot of time talking about immigration uh as my platform, because to me, it comes down to something that's fundamental. So fundamentally, we can't live in a society where we mistreat people, any people. It just doesn't work, right? And so if we have people in our midst who are living in our society, they all deserve, because every human being deserves to be treated with dignity. There's no rounding up people. That's just patently wrong. Now, there are immigration policies, and I'm a big law and order person. And so we can have a discussion, a real discussion, about law and order. But I think that we also have to balance kind of what we're doing with regards to immigrants in the state of California and elsewhere, with the fact that in the state of California, I know for a fact that there are a tremendous amount of immigrants who have lived here undocumented for many, many years. And in some cases, numerous decades. They've had children here, they've raised children here, uh, their children are American citizens and paying taxes and in some cases serving our country in the military. And for us to now say to these people, get out, I mean, I actually don't believe that's the right thing to do. And um, you know, so so I'm I I have uh I have very strong beliefs about uh what is right and and doing what's right. Teddy Roosevelt, who's probably my number one political role model, uh, said there's a right and there's a wrong, and I always want to be on the side of right. And I would say I'm in the same camp on that.

SPEAKER_00:

Yeah, I'm I'm really glad. I mean, when we first met in Huntington Beach uh in September, one of the things that really stood out to me about you was how caring you were about people, you know, and that then that's something that a lot of people might not um pair always with someone who has such a strong uh finance investment background.

SPEAKER_01:

You know, that's by the way, I have to I have to attack that because that's just so terrible. We we do tend to um characterize people, you know, judge the book by the cover, and then start to group people. And yeah, I mean, I I I'm a not only am I a very nice person, you know, I'm a very kind person. My wife is Latina. She literally was born and raised in Venezuela and Chile, and she moved here as an immigrant in 1992, uh, and speaks with quite a heavy Spanish accent. So Spanish is her first language. My family's all fluent in Spanish. I have a Latino family, actually, because of the mother of the family is Latina. And so I am extremely empathetic to um to everybody, right? I mean, I I've I have two adopted children, just to throw that out there, one of whom is born in Africa. Um, so, and one of whom is born in South America. So I I have a very broad uh kind of experience within my own family. And um and uh and as a result, I think I've created a nice family of empathy and caring.

SPEAKER_00:

Yeah, so that leads me to perfectly to my next question with this experience that you've just talked about, this the social experience, your family experience, um, your your your background uh in your ethnic background and uh and that of your family, but then also your strong background in finance and investment, as I had just mentioned. What government problem do you think believe, or do you believe that your background equips you to fix better than a traditional uh politician? And what's one tangible result people will see within uh the first six months?

SPEAKER_01:

Well, I I don't think what you call traditional politician, and I will call career politician. I don't think that they're well equipped to actually serve our country in any way, our state, our cities, our country. I think this is a false narrative. Uh, unfortunately, um, you know, when our founding fathers uh first kind of fought up our country, they believed in citizen government, right? That citizens with would bring their real life experience to government and government would benefit from that. They really did not imagine a country run by professional politicians who over time would lose all connection to and understanding of and ability to be empathetic with the average citizen. And so to me, the domain expertise required to run a country, where because we're California is a country. It's a four plus trillion dollar economy. It's mostly financial, it's mostly economical, um, it's mostly systems that need to work and function to service our society. This is tremendous domain expertise that is far beyond the scope of most everybody, really. And I think that I do bring kind of a unique background with my kind of experience in business, my business, my experience having transformed an entire system, the real estate finance system in America, uh, and my experience as a professor. I've been teaching at business school. So I, you know, I think I bring a unique package of skills that are really relevant to rework the systems that are desperately needed to be reworked in our state, taxes being the obvious one, but I'll throw a couple of couple of other ones out there. Property insurance systems. You know, if you don't have ample property insurance, which we don't have in the wake of our fire problems, if you can't get property insurance, you can't get a mortgage on your house. And if you can't get a mortgage on your house, or a buyer can't get a mortgage when he wants to buy your house, your house is worth a lot less than it otherwise would be because someone has to buy it without a mortgage. And there are just far fewer buyers that can afford a house without a mortgage. And so we are facing catastrophic economic problems if we don't solve for this property um insurance problem, which given my background, I'm perfectly suited to handle. But I can go on and on. I mean, energy is another example, and just understanding the intricacies of energy and how energy is priced in our state, and the lack of a free market aspect to how energy is priced has created this artificially inflated energy cost that is punishing our citizens and particularly our working class citizens. So all of that will be fixed by somebody like me who actually brings an awareness and an understanding of how to actually repair these broken systems.

SPEAKER_00:

Yeah. And I mean, we so we've spent a lot of time talking about what needs to change. I I want to ask you sort of a different question. Um if you and you'll be following uh Gavin Gavin Newsom into the governor's house, but what parts of his tenor do you believe actually merit continuation?

SPEAKER_01:

Absolutely none. I think he's he's he's failed our state in every single level. He's been, he's your prototypical um career politician who literally knows nothing. He's a wonderful actor. He should have been an actor in the movies or in TV. He'd have been he's handsome, he's incredible at reading scripts, memorized lines, but he literally is an empty vessel. He knows nothing. And our state, the results in our state reflect that across the board. You know, there these are not what I say seems hyperbolic, but they're actually based on objective observations. So imagine that we have a$4.2 trillion economy, which we do in California, and we hear him brag about that, that we're the fourth largest economy, if we were a country in the world. How would that be? How is it possible that in a state that has that economic heft, we also are the state with the most people and the highest percentage unemployed. We are the state with the most people and highest percentage living at or near the poverty line. We are the state with the highest percentage and most people that are homeless. We are the state with the highest percentage and most young adults living at home with their parents, double, by the way, the national average. The only answer to any of those questions, the only thing that speaks to kind of that conundrum is the most incompetent intermediation process in the history of government, and that's our state government. So nothing. I would, I would actually, I would say everything needs to be redone. He's the complete failure.

SPEAKER_00:

Are you then siding with Trump? Trump has lots of criticiz uh criticized of newsome.

SPEAKER_01:

Well, well, I I I'm running as a true independent, Melanie, and I'm not um an advocate for either of the parties. Now, of course, I'm running for California government, and the California governorship and the California statewide uh offices have been controlled by the Democrat Party. So the record that I need to fix is clearly a Democrat record. And it might seem like I'm a very partisan person favoring the Republican Party, which seems weird as an independent. But the reality is the Republican Party's done nothing in the state of California. So there's nothing really to criticize about their, you know, their input into state affairs. They've been essentially uninvolved. So uh so perhaps I might I want to make sure that I don't come off as just this kind of like sneaky um MAGA Republican criticizing Democrats but running as an independent. I I have there's nothing to criticize about the Republican record. They've done nothing for 20 years. They haven't been involved.

SPEAKER_00:

Yeah, Ethan, and I I think that's fair. I I want to ask just before we wrap up about uh the debt situation in in California. A lot of our viewers are involved in the stock market, it's advisors, it's um traders, uh, funds, equity, uh people involved in equities. What are you going to do if the U.S. or if California heads into a recession?

SPEAKER_01:

I think the recessions, Melanie, are always uneven. Always uneven. Meaning they affect different places and different people uh differently. California is a magical place. California should be immune to a large extent to a recession. I I would the question you ask, if you were to ask me, um, and I was aspiring to be the governor of another state, and there are many states that I think are very, very vulnerable. Illinois, for, for example, very vulnerable. New York, New Jersey, um, Oregon, Seattle, the state the country's filled with states where the answer to your question would be very, very challenging. Very challenging. California happens to be one of the very few examples uh that are kind of exceptions to that question. I think a well-run California should thrive regardless of the national economy, and in spite of perhaps problems and headwinds that we face. So I'm very bullish on California if I were to win, if I'm able to make the changes that need to be made. Otherwise, I have to tell you, I'm extremely bearish because the statistics that I just mentioned are embarrassing, right? The state of California arguably the should be the most um powerful state, the most successful state. We're dead last in all of these things. Dead last, okay? And so if I don't win, and the alternative is probably somebody who's going to be very similar to our current governor, perpetuate the trends and the and the um policies that he's got in place, and maybe even be worse, uh, I would be very nervous. So this is an inflection point for the state. And as an investor, I would be watching this election very, very carefully.

SPEAKER_00:

So to wrap up, where should people be going to find out more about you? What's your plan heading in uh to the end of the year? What's on the horizon?

SPEAKER_01:

So we have a uh website, pennerforgovernor.com. And I would say uh I'm a very unique candidate, and I think your listeners by now will probably have figured that out. I actually have something to say. I'm not afraid to say it or answer any question, come at me. And in the same vein, our website already has four policy papers up. We're eight and a half months away from the primary. There's not another candidate that even has a policy that they could articulate. So we already have four policy papers up. We're gonna end up with about four or five or six more policy papers up over the next month or so. Uh, and we're gonna be a very uniquely transparent campaign where so when I get elected governor, the legislators will know that the people voted not just for me as governor, but for these policy changes because they're gonna be hungry for the change that we're gonna bring. So uh so that's what I would do. I'd go to our our our um our website uh and see what we're doing and and sign up because this is a movement of the people for the people.

SPEAKER_00:

Ethan, I I want to thank you for doing this, for uh coming on lead leg live. And I would love to have you back uh into the end of the year or in into next year.

SPEAKER_01:

Uh anytime. I I I enjoy talking to you, and uh I would love to join you anytime you'd have me. Thank you.

SPEAKER_00:

And also thanks to everyone for watching. Be sure to like, share, and subscribe for more episodes of Lead Leg Live. See you next time.

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Michael A. Gayed, CFA

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