California's Billionaire Tax: Economists Clash Over $139 Billion Dispute

Californians are preparing to vote on Proposition 40, a measure that would impose a one-time 5% tax on the net worth of billionaires.

The proposal targets residents who lived in the state on January 1, 2026, and would apply retroactively to their assets.

Gabriel Zucman, a professor at UC Berkeley and the Paris School of Economics, supports the measure. He co-authored an analysis estimating the tax would generate approximately $100 billion for the state.

Zucman argues that California's billionaire wealth reached $2.3 trillion by mid-2026, a figure comparable to the total annual income reported by all Californians.

He notes that the wealth of the state's top 0.001% of households multiplied by 25 between 1982 and 2026, while average real family income doubled over the same period.

Zucman and his co-authors Jasper Boll and Emmanuel Saez derived the $100 billion estimate by applying the 5% rate to the $2.3 trillion wealth pool and reducing the figure by 10% to account for potential avoidance or evasion.

Joshua Rauh, a Stanford economist and Hoover Institution senior fellow, presents a contrasting view in a study co-authored with Benjamin Jaros.

Rauh estimates that Proposition 40 would actually cost the state $39 billion rather than raise funds. He argues that the tax would trigger an exodus of billionaires, damaging the state's broader income tax base.

A central point of contention involves seven prominent billionaires who moved out of California before the January 1, 2026, cutoff: Larry Page, Sergey Brin, Peter Thiel, Don Hankey, Steven Spielberg, Travis Kalanick, and David Sacks.

Rauh calculates that these departures alone reduced the potential revenue by around $30 billion. He contends that their new residency status places their fortunes beyond the tax's reach.

Zucman disputes this assessment, citing legal experts who believe it is unlikely these individuals successfully ended their California tax residency in such a short window.

The measure was announced in late October 2025, leaving potential taxpayers only about two months to establish residency elsewhere. Zucman points to Sergey Brin, who moved to Nevada but continues to commute to Silicon Valley, as an example of why a simple address change may not suffice for tax purposes. Rauh maintains that Brin and the others have likely secured their exit with the help of top-tier financial advisors and lawyers. The dispute highlights the legal complexities inherent in determining residency for high-net-worth individuals. Rauh also warns that constitutional challenges could strike down parts of the law, particularly the retroactive provision and the valuation methods for privately held companies. Past wealth taxes in countries like France and Norway have faced criticism for loopholes and taxpayer flight, although the extent of that impact remains debated among experts. The proposed California tax aims to close these gaps by taxing business holdings and applying a retroactive residency date. The outcome of the vote will determine whether the state proceeds with a tax experiment that could influence national policy. Superrich individuals have already invested $333 million in a campaign to defeat the proposition, according to a recent report in The New York Times. The money raised would be earmarked primarily for healthcare for low-income Californians to offset federal Medicaid cuts. The debate reflects a wider disagreement over how to tax assets that do not generate regular taxable income. Zucman describes the current system as allowing the wealthiest to accumulate assets while paying little in income tax. Rauh and his colleagues argue that the proposed structure is too fragile to withstand legal and behavioral pressures. The final decision will rest with voters on Election Day.