Economists split on California billionaire tax outcome

Two major economic analyses of California’s proposed billionaire wealth tax have produced starkly different financial projections. One team estimates the measure would raise approximately $100 billion for the state, while the other calculates it would cost California $39 billion. The divergence centers on whether the tax will generate net revenue or trigger an exodus of the state’s wealthiest residents.

The proposal, known as Proposition 40, would impose a one-time 5% tax on the net worth of any individual who was a California resident on January 1, 2026, and whose assets exceed one billion dollars. The revenue is earmarked primarily for healthcare for low-income Californians to offset federal Medicaid cuts. The tax applies to assets such as stocks, real estate, and private holdings, excluding certain categories not specified in the public summary.

The debate has intensified in the weeks leading up to the election. Gabriel Zucman, a professor at UC Berkeley and the Paris School of Economics, co-authored the analysis predicting the $100 billion gain. He and his colleagues Jasper Boll and Emmanuel Saez based their figure on an estimated $2.3 trillion in wealth held by California billionaires as of mid-2026. They applied the 5% rate and reduced the total by 10% to account for potential tax avoidance or early departures from the state.

Joshua Rauh, a senior fellow at Stanford University’s Hoover Institution, co-authored the counter-analysis with Benjamin Jaros. Rauh argues that the tax will drain state coffers by $39 billion. His calculation rests on the premise that at least seven high-profile billionaires have already left the state before the residency cutoff date. Rauh identifies Larry Page, Sergey Brin, Peter Thiel, Don Hankey, Steven Spielberg, Travis Kalanick, and David Sacks as having established new residences elsewhere. He estimates their departures alone removed roughly $30 billion from the tax base.

Zucman disputes the assumption that these individuals have successfully severed their California tax ties. He points to the short window between the proposal’s announcement in late October 2025 and the January 1 cutoff, arguing that establishing residency is a complex legal process. He cites the example of Sergey Brin, who moved to Nevada near Lake Tahoe but continues to commute to Silicon Valley for work. Zucman believes it is unlikely these figures have legally ended their residency before the deadline.

Beyond the residency dispute, Rauh highlights legal risks associated with the tax’s novel structure. He warns that constitutional challenges could result in parts of the measure being struck down by the courts. Specific concerns include the retroactive nature of the tax, its application to global assets, and the method for valuing privately held companies. The outcome of these legal questions could determine whether the tax collects its full projected amount or faces reductions.

The stakes of the vote extend beyond state finances. Supporters argue the tax could launch a national movement to address inequality, while opponents contend it may drive capital away from the state. A recent report in The New York Times noted that the superrich have contributed $333 million to a group opposing the proposition. Voters will decide on the measure on Election Day.