California's billionaire tax faces $139 billion swing in expert forecasts

Californians vote on Proposition 40 this week, a measure that would impose a one-time 5% tax on the net worth of residents with fortunes exceeding $1 billion. The proposal targets wealth accumulated by individuals who lived in the state on January 1, 2026. Revenue from the tax is designated primarily for Medicaid services for low-income residents.

The primary dispute centers on the net financial impact of the levy. Gabriel Zucman, a professor at UC Berkeley, estimates the tax will generate approximately $100 billion. He calculated this figure by applying the 5% rate to his estimate of $2.3 trillion in total billionaire wealth. Zucman reduced this gross amount by 10% to account for potential avoidance and evasion.

Joshua Rauh, a senior fellow at the Hoover Institution at Stanford, argues the measure will actually cost the state $39 billion. His analysis suggests the tax will trigger a mass exodus of wealthy residents. Rauh contends that the loss of existing income tax revenue from departing billionaires will outweigh the new wealth tax collections.

A key point of contention is the residency status of seven high-profile individuals. Rauh lists Larry Page, Sergey Brin, Peter Thiel, Don Hankey, Steven Spielberg, Travis Kalanick, and David Sacks as having established residency in other states before the January 1 cutoff. He estimates their departures remove roughly $30 billion from the potential tax base. Zucman disputes this, noting that the proposal was announced in late October 2025. He argues that moving within two months does not constitute a legal change of tax residency.

The two economists also disagree on the legal durability of the tax. Rauh predicts constitutional challenges will succeed in striking down parts of the law. He points to the retroactive nature of the tax and its application to out-of-state assets as potential due process violations. Zucman cites a recent study of Norway, which has maintained a wealth tax since 1892. That study found that tax increases drove at most 100 wealthy individuals to leave the country, with minimal impact on total revenue.

The proposal differs from previous wealth taxes by including business holdings in the taxable base. France removed its wealth tax in 2018 after it excluded shares in companies owned by the taxpayer. Prop 40 taxes these assets to close that loophole. The measure also applies retroactively to residency status as of early 2026 to limit last-minute moves.

Zucman and his co-authors note that California billionaire wealth rose 144% between 2023 and 2025. They attribute this growth largely to the rise of artificial intelligence. The total wealth of the top 0.001% of households in the state has multiplied by 25 since 1982. During the same period, average real family income in California has only doubled.

The debate has drawn significant financial attention. A group opposing the proposition has raised $333 million from ultra-wealthy donors. This sum was reported by The New York Times. The outcome of the vote will determine if California proceeds with this one-time levy or retains the status quo on taxing extreme wealth.