Economists Estimate Opposite Outcomes for Prop 40

Californians will vote on Proposition 40 on November 3, 2026, a measure that proposes a one-time 5% tax on the net worth of individuals with over $1 billion in assets. The vote determines whether the state will implement the first billionaire-specific wealth tax in the United States. Revenue from the tax is earmarked primarily for Medicaid healthcare for low-income residents.

Two competing economic models released this year produce drastically different revenue projections. Gabriel Zucman, a professor at UC Berkeley and the Paris School of Economics, co-authored an analysis estimating the tax will raise approximately $100 billion. Joshua Rauh, a Stanford economist and Hoover Institution fellow, co-authored a report arguing the tax will cost the state $39 billion.

Zucman’s calculation starts with an estimate that California billionaire wealth reached $2.3 trillion by mid-2026. His team projects a 10% reduction in that figure to account for avoidance and evasion. Zucman argues the tax addresses a gap in the current income system where the wealthiest pay little relative to their asset growth.

Rauh disputes the baseline numbers. He asserts that seven prominent billionaires, including Larry Page, Sergey Brin, Peter Thiel, Don Hankey, Steven Spielberg, Travis Kalanick, and David Sacks, established residency outside California before the January 1, 2026, cutoff date. Rauh calculates that these departures removed about $30 billion from the potential tax base. He argues that the remaining tax burden will trigger further exodus and legal challenges, resulting in a net loss for the state budget.

The debate hinges on whether these residents successfully changed their domicile. Zucman notes that Prop 40 was announced in late October 2025, leaving less than two months for residents to move. He points to Sergey Brin, who moved to Nevada but continues to commute to Silicon Valley, as an example of a residency that may not hold up legally. Rauh maintains that the individuals involved have likely secured valid residency status in other states.

Legal uncertainty adds to the financial risk. Rauh warns that the tax’s retroactive nature and its reach into out-of-state assets invite constitutional challenges. He suggests the Supreme Court’s conservative majority could strike down parts of the law. Zucman acknowledges legal risks but cites data from Norway, where a recent wealth tax increase caused at most 100 wealthy residents to leave without significantly reducing revenue.

Supporters and opponents have invested heavily in the campaign. A report in The New York Times indicates that super-rich individuals contributed $333 million to groups opposing the proposition. The measure includes provisions to tax business holdings, closing a loophole that allowed France to exempt such assets from its previous wealth tax.

The vote follows the 1978 passage of Proposition 13, a tax reduction measure that reshaped state fiscal policy. Prop 40 represents a reversal of that direction, targeting the top 0.001% of households. The outcome will determine if California proceeds with a tax structure that other states and countries are watching.

Counties are preparing for a potential surge in valuation disputes if the tax passes. The measure requires the state to assess assets that rarely change hands, such as private equity stakes and luxury real estate. Zucman notes that most billionaire wealth is held in publicly traded stocks, which simplifies valuation. Rauh argues that the complexity of private assets will slow collection and increase administrative costs.

Voters will weigh these estimates at the polls on November 3. The state budget office will review final revenue forecasts in December 2026. No other national wealth tax is currently scheduled for a vote.