Economists Clash Over California Billionaire Tax Outcome
Analysts disagree on whether Proposition 40 will generate $100 billion in revenue or cost the state $39 billion due to resident departures.
By Takeshi Faure ·
California voters face a historic decision on Proposition 40, a proposed one-time 5% tax on the net worth of billionaires who were residents on January 1, 2026. The measure aims to raise funds for health care for low-income residents to offset federal Medicaid cuts. Economists disagree sharply on the fiscal impact of this policy, with estimates ranging from a $100 billion gain to a $39 billion loss for the state.
Gabriel Zucman, an economist at UC Berkeley and the Paris School of Economics, co-authored an analysis estimating the tax will raise approximately $100 billion. Zucman, Boll, and Saez calculated this figure by applying the 5% rate to an estimated $2.3 trillion in billionaire wealth, then reducing the total by 10% to account for avoidance and evasion. They noted that California billionaire wealth increased by 144% between 2023 and 2025, driven largely by the artificial intelligence boom.
Zucman argues that the existing income tax system fails to capture the growing wealth of the super rich. He states that billionaires can structure their finances to generate little taxable income, making income tax rates irrelevant. He believes a wealth tax will help reduce inequality and raise necessary public funds. He views the California measure as a starting point for a wider movement toward federal and international wealth taxes.
Joshua Rauh, a senior fellow at the Hoover Institution at Stanford, co-authored a competing analysis with Benjamin Jaros. Rauh contends that the tax could cost California $39 billion. He argues that at least seven billionaires, including Larry Page, Sergey Brin, and Peter Thiel, left the state before the January 1, 2026 cutoff. Rauh claims these departures alone reduced potential revenue by around $30 billion.
Zucman disputes the claim that these individuals escaped the tax. He argues that changing an address is not sufficient to end tax residency, especially given the short window between the proposal's announcement in late October 2025 and the January 1 cutoff. He points out that some of the named individuals, such as Sergey Brin, continue to commute to Silicon Valley. Rauh maintains that these billionaires likely established residency in other states, such as Nevada, with the help of legal experts.
Past attempts at wealth taxes have often failed due to loopholes and resident migration. France scrapped its wealth tax in 2018 after critics claimed it drove tens of thousands of millionaires to leave. Zucman acknowledges migration is a concern but cites a study of Norway, which has had a wealth tax since 1892. That study found recent tax increases drove at most 100 wealthy people to leave without significantly denting revenue gains.
Proponents of Proposition 40 designed the tax to address past failures. It taxes business holdings, including shares in companies run by the owners, unlike France's old system. The retroactive nature of the tax, tied to residency on a specific date, is intended to prevent last-minute moves. Rauh, however, argues that legal challenges could undermine the measure. He cites potential constitutional issues regarding retroactivity and the valuation of privately held companies.
The debate over Proposition 40 has attracted substantial financial backing. According to a recent report in The New York Times, super-rich individuals have poured $333 million into a group attempting to defeat the proposition. The outcome will determine whether California proceeds with this experiment, which could influence tax policy discussions across the United States and globally.
