Economists studied California's billionaire tax, reached different conclusions

California’s Proposition 40 would impose a one-time 5% tax on the net worth of people who were California residents on January 1, 2026, with most proceeds directed to health care for low-income residents. The proposal covers business holdings as well as other assets, and its retroactive cutoff is intended to stop billionaires from avoiding the tax by moving away after its announcement. Supporter Gabriel Zucman and colleagues estimate that California billionaires hold $2.3 trillion in wealth, which has surged amid the AI boom and grown far faster than ordinary incomes over decades. They project about $100 billion in revenue, allowing for some avoidance and departures. Zucman argues that a wealth tax would reach fortunes that can escape income taxes and help curb inequality and concentrated political power.

Stanford economist Joshua Rauh and co-author Benjamin Jaros predict a very different outcome: Proposition 40 could cost the state $39 billion by driving billionaires away and reducing existing income-tax receipts. Rauh says several prominent figures had already left before the cutoff, potentially removing about $30 billion in taxable wealth; Zucman disputes that they legally ended their California residency. The economists also differ over how much revenue would be lost to avoidance and legal challenges. Rauh warns that courts could reject provisions involving retroactive taxation, worldwide assets, or the valuation of private companies, while the proposal’s designers included fallback rules. The dispute reflects broader uncertainty about whether a state can effectively tax the ultrawealthy - and whether California’s experiment could shape future national or international policy.