Economists Clash Over $100 Billion California Billionaire Tax

California billionaire wealth reached $2.3 trillion by mid-2026, a sum equal to the total annual income reported by all state residents. This staggering figure sits at the center of a fierce debate over Proposition 40, a ballot measure that would impose the nation's first one-time, 5% wealth tax on individuals with net worth exceeding one billion dollars.

The proposal applies retroactively to anyone who was a California resident on January 1, 2026. Revenues are earmarked primarily to offset federal cuts to Medicaid for low-income Californians. As Election Day approaches, two high-profile economists have published conflicting estimates of the tax's financial impact.

Gabriel Zucman, a professor at UC Berkeley and the Paris School of Economics, co-authored a report estimating the tax will generate approximately $100 billion. Zucman, who helped design wealth tax proposals for former presidential candidates Elizabeth Warren and Bernie Sanders, argues the measure will curb rising inequality and fund public services. He notes that California billionaire wealth grew by 144% between 2023 and 2025, driven largely by the artificial intelligence boom.

Zucman and his co-authors Jasper Boll and Emmanuel Saez calculated the $100 billion figure by taking 5% of the estimated $2.3 trillion in assets. They then reduced that number by 10% to account for potential avoidance, evasion, or changes in residency. Zucman contends that the existing income tax system fails to capture the wealth of the superrich, who can structure their finances to report little taxable income.

Joshua Rauh, a Stanford economist and senior fellow at the Hoover Institution, presents a contrary view. In an analysis co-authored with Benjamin Jaros, Rauh estimates Proposition 40 will cost California $39 billion. He argues that the tax will trigger an exodus of billionaires, reducing the state's income tax revenue more than the new wealth tax will add.

Rauh claims at least seven prominent individuals, including Larry Page, Sergey Brin, Peter Thiel, Don Hankey, Steven Spielberg, Travis Kalanick, and David Sacks, have already moved out of California before the residency cutoff. He estimates these departures reduce potential revenue by around $30 billion. Zucman disputes this, arguing that a quick change of address does not automatically end tax residency, especially since the proposal was announced in late October 2025, giving residents only two months to relocate.

The two sides also disagree on legal risks. Rauh warns that billionaires will file constitutional challenges, particularly regarding the tax's retroactive nature and its reach into global assets. He believes the Supreme Court's conservative majority may strike down parts of the measure. Zucman points to historical data from Norway, where a wealth tax in place since 1892 saw only 100 wealthy residents leave after recent rate increases, a number he deems too small to dent revenue significantly.

Supporters of the tax have poured $333 million into a campaign to defeat Proposition 40, according to a recent report in The New York Times. This spending reflects fears that a successful state-level wealth tax could pave the way for similar federal and international measures. The final outcome depends on whether voters trust the state to capture the $2.3 trillion in assets or if they fear the legal and economic fallout predicted by critics.

The debate hinges on whether the proposed loopholes are sufficiently closed. Unlike previous wealth taxes, such as France's 2018 measure, Proposition 40 taxes business holdings and uses a retroactive residency date to limit escape routes. Whether these design choices will hold up in court or attract new residents remains the central question for California voters this November.