Economists split on whether California's new billionaire tax will raise or lose money

California voters are set to decide on Proposition 40, a proposal that would impose a one-time 5% tax on the net worth of billionaire residents. The measure would apply retroactively to individuals who lived in the state on January 1, 2026. The proceeds would be designated primarily for the health care of low-income Californians to help offset federal cuts to Medicaid. This initiative marks a shift from the state's 1978 Proposition 13, which lowered property taxes.

Economists disagree sharply on how much revenue the tax will generate. Gabriel Zucman, an economist at UC Berkeley and the Paris School of Economics, co-authored an analysis estimating the tax will raise about $100 billion. He and his colleagues Jasper Boll and Emmanuel Saez calculated this figure by taking 5% of the estimated $2.3 trillion in billionaire wealth in California as of mid-2026. They then reduced that number by 10% to account for potential avoidance, evasion, or residency changes before the cutoff date.

Zucman argues that the current income tax system fails to capture the wealth of the superrich. He notes that California billionaire wealth grew by 144% between 2023 and 2025, largely due to the artificial intelligence boom. From 1982 to 2026, the real wealth of the top 0.001% of households multiplied by 25, while average real family income in the state only doubled. He believes a wealth tax addresses the ability of billionaires to structure finances that generate little taxable income.

Joshua Rauh, a Stanford economist and senior fellow at the Hoover Institution, presents a contrasting view. He and co-author Benjamin Jaros estimate that Proposition 40 will actually cost the state $39 billion. Their analysis suggests the tax will trigger an exodus of billionaires, damaging the state's economy and reducing the income tax revenue California already collects from these high earners. Rauh argues that the 10% reduction in revenue projected by Zucman is too optimistic.

A central point of contention is whether seven prominent billionaires successfully ended their California residency before the January 1, 2026, deadline. Rauh identifies Larry Page, Sergey Brin, Peter Thiel, Don Hankey, Steven Spielberg, Travis Kalanick, and David Sacks as having left. He claims these departures reduced potential revenue by around $30 billion. Zucman disputes this, stating that legal experts believe it is unlikely these individuals successfully terminated their tax residency. He points to Brin, who moved to the Nevada side of Lake Tahoe but still commutes to Silicon Valley, as evidence that a simple address change may not suffice for tax purposes.

The dispute extends to the legal viability of the tax. Rauh warns that billionaire litigants will likely challenge the measure in court, particularly the retroactive provision that taxes wealth based on past residency. He argues this could violate due process protections. He also raises concerns about how the tax values privately held companies and reaches wealth held outside the state. Zucman acknowledges that past wealth taxes in countries like France and Norway faced issues with asset sheltering and taxpayer flight, but he believes the design of Proposition 40 addresses these historical failures.

The financial stakes of the debate are high, with super-rich individuals reportedly contributing $333 million to a group seeking to defeat the proposition. The outcome will determine whether the tax is applied to a shrinking group of residents or a stable one, and whether the state gains a new revenue stream or loses existing income tax dollars. The final determination rests with voters in the coming days.