Two economists clash on whether California's billionaire tax will raise or cost billions
Supporters estimate a $100 billion windfall, while critics argue the one-time levy could drain $39 billion from state coffers.
By Abigail Brooks ·
Californians are preparing to vote on a one-time 5% tax on the net worth of billionaires. The measure, known as Proposition 40, would apply retroactively to anyone who was a state resident on January 1, 2026. Economists disagree sharply on whether this policy will fill the state's budget or empty it.
Gabriel Zucman, an economist at UC Berkeley and the Paris School of Economics, estimates the tax will raise about $100 billion. He co-authored an analysis with Jasper Boll and Emmanuel Saez that found California billionaire wealth reached $2.3 trillion by mid-2026. Zucman argues that this wealth has grown by 144% between 2023 and 2025, driven largely by the artificial intelligence boom. He believes the tax will address the issue of superrich individuals accumulating assets while paying little in income taxes.
Joshua Rauh, a Stanford economist and Hoover Institution fellow, presents a counter-analysis. He and co-author Benjamin Jaros estimate that Proposition 40 could cost the state $39 billion. Rauh argues that at least seven prominent billionaires have already left California before the residency cutoff date. Those individuals include Larry Page, Sergey Brin, Peter Thiel, Don Hankey, Steven Spielberg, Travis Kalanick, and David Sacks. Rauh says their departures reduced potential revenue by around $30 billion.
The two sides dispute whether these moves will hold up in court. Zucman argues that establishing new tax residency takes more than changing an address. He notes that Sergey Brin, who moved to Nevada, still commutes to Silicon Valley. Zucman says legal experts he trusts believe it is unlikely these billionaires successfully ended their California residency. Rauh maintains that these figures have likely established Nevada residency and are therefore beyond the tax's reach.
The tax proceeds are earmarked for low-income health care to offset federal Medicaid cuts. The proposal differs from previous wealth taxes in France by taxing business holdings and using a retroactive date to limit evasion. Wealth tax proponents cite a Norway study showing that tax increases led to few departures. Critics point to a history of failed wealth taxes and the risk of constitutional challenges. The superrich have contributed $333 million to a group seeking to defeat the measure.
