Economists Clash Over California's Proposed Billionaire Tax

Californians face a decision on Proposition 40 that pits two leading economic camps against each other. The measure proposes a one-time 5% tax on the net worth of billionaires. One analysis predicts the state will gain roughly $100 billion. The other argues the tax will cost the state $39 billion. Both sides claim their model accounts for the behavior of the ultra-wealthy, but they disagree on how many billionaires will flee and how courts will rule.

The debate follows a long history of tax policy in the state. In 1978, voters approved Proposition 13, which cut property taxes and helped launch a national movement to lower taxes. Now, the state considers a measure that moves in the opposite direction. The proposed tax is retroactive, applying to anyone who was a California resident on January 1, 2026. Revenue would primarily fund healthcare for low-income residents to offset federal Medicaid cuts.

Gabriel Zucman, a professor at UC Berkeley and the Paris School of Economics, supports the tax. He co-authored an estimate with Jasper Boll and Emmanuel Saez that projects $100 billion in revenue. Their calculation starts with the estimated $2.3 trillion in wealth held by California billionaires as of mid-2026. They apply the 5% rate and then reduce the total by 10% to account for potential avoidance and residency changes. Zucman argues that current income taxes fail to capture the rapid growth in billionaire wealth, which has increased by 144% between 2023 and 2025.

Joshua Rauh, a Stanford economist and senior fellow at the Hoover Institution, presents a counterargument. In a study with Benjamin Jaros, he calculates that the tax would drain $39 billion from the state. Rauh argues that at least seven high-profile billionaires have already moved to other states to escape the tax. He lists Larry Page, Sergey Brin, Peter Thiel, Don Hankey, Steven Spielberg, Travis Kalanick, and David Sacks among those who left. He estimates these departures alone reduce potential revenue by about $30 billion. Rauh also contends that legal challenges will likely reduce the tax's effectiveness further.

The two sides dispute the residency of these movers. Zucman notes that the proposal was announced in late October 2025, leaving little time to establish new residency. He points to Sergey Brin, who moved to Nevada near Lake Tahoe but continues to commute to Silicon Valley. Zucman believes it is unlikely these individuals successfully ended their California tax residency. Rauh disagrees, stating that Brin and the others have likely secured legal standing in their new states. He maintains that their wealth is now beyond the state's reach.

Legal risk forms the second pillar of Rauh's argument. He warns that billionaires will file constitutional challenges against the tax's retroactive nature and its global reach. The Supreme Court has a conservative majority, and Rauh believes this creates a risk that parts of the measure could be struck down. Zucman acknowledges past wealth taxes have failed due to loopholes and migration but argues this proposal closes those gaps. It taxes business holdings and uses the retroactive cutoff to limit flight. The measure aims to address the complexity of valuing unique assets like art and private equity, though most billionaire wealth is in publicly traded stocks with clear market prices.

The financial stakes are high for both supporters and opponents. A recent report in The New York Times states that the superrich have donated $333 million to a group opposing the proposition. The outcome of the vote will determine if California becomes the first state to implement such a levy. The results may also influence how other jurisdictions approach taxing extreme wealth. Voters will decide the fate of this experiment on Election Day.