Economists Clash Over Billion-Dollar Stakes in California Wealth Tax Vote

SACRAMENTO, Calif. (AP), California voters face a decisive choice on Tuesday regarding Proposition 40, a measure that would impose the nation's first one-time 5% wealth tax on billionaires. The proposal, which applies to net worth accumulated while resident in the state as of January 1, 2026, has sparked a sharp economic debate over whether the tax will generate substantial revenue or drive wealthy residents out of state.

The proposed levy targets the net worth of individuals with assets exceeding one billion dollars, exempting certain assets while taxing stocks, real estate, and other holdings. Revenue from the tax is earmarked primarily to offset federal cuts to Medicaid and support health care for low-income Californians. The measure is retroactive, meaning it applies to wealth held prior to the tax's enactment, a provision that has drawn legal scrutiny.

Gabriel Zucman, an economist at UC Berkeley and the Paris School of Economics, co-authored an analysis estimating the tax could raise approximately $100 billion. Zucman and colleagues Jasper Boll and Emmanuel Saez calculated that California billionaire wealth reached $2.3 trillion by mid-2026, a 144% increase between 2023 and 2025 driven by the AI sector. Their estimate accounts for a 10% reduction in revenue due to potential avoidance or evasion, but they argue the tax will have only minor impacts on existing income tax collections.

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

A central point of contention is whether several high-profile billionaires successfully changed their residency before the January 1, 2026, cutoff. Rauh claims that at least seven individuals, including Google co-founder Sergey Brin and Facebook co-founder Mark Zuckerberg's peers such as Peter Thiel and Travis Kalanick, have already left the state. He estimates their departure reduces potential revenue by around $30 billion. Zucman disputes this, arguing that a quick change of address does not necessarily end tax residency, particularly when individuals like Brin continue to commute to Silicon Valley for work.

The debate also hinges on legal viability. Rauh points to the risk of constitutional challenges, particularly regarding the tax's retroactive nature and its reach into assets held outside California. He notes that the Supreme Court's conservative majority may view the measure unfavorably. In response, proponents argue that the one-time, retroactive structure was designed specifically to prevent billionaires from escaping the tax by moving after the proposal was announced in late October 2025.

Historical precedents for wealth taxes offer mixed evidence. Zucman acknowledges that past attempts, such as France's tax scrapped in 2018, often failed due to loopholes that allowed the wealthy to shelter assets. However, he cites a study on Norway, which has maintained a wealth tax since 1892, suggesting that recent rate increases drove at most 100 wealthy individuals to leave the country without significantly denting revenue. The outcome of Tuesday's vote in California will likely influence future tax policy debates at the federal and international levels.