California Billionaire Tax Debate: $100 Billion Gain or $39 Billion Loss?

Economists disagree sharply on the financial outcome of California’s proposed billionaire wealth tax. The dispute centers on Proposition 40, a one-time 5% levy on the net worth of individuals who resided in the state on January 1, 2026. The measure aims to generate funds for health care for low-income residents. Two recent studies produce estimates that differ by nearly $140 billion.

Gabriel Zucman, a professor at UC Berkeley and the Paris School of Economics, co-authored an analysis with Jasper Boll and Emmanuel Saez. They estimate the tax will raise approximately $100 billion. Their calculation starts with the $2.3 trillion in wealth held by California billionaires as of mid-2026. They apply the 5% rate and subtract 10% to account for potential avoidance and evasion. Zucman argues this revenue stream is necessary because the existing income tax system allows the superrich to generate little taxable income.

Joshua Rauh, a senior fellow at Stanford University’s Hoover Institution, co-authored a competing study with Benjamin Jaros. They conclude the tax will cost the state $39 billion. Rauh argues that seven prominent billionaires have already left the state before the residency cutoff. Those individuals include Larry Page, Sergey Brin, Peter Thiel, Don Hankey, Steven Spielberg, Travis Kalanick, and David Sacks. Rauh estimates their departures remove around $30 billion from the potential tax base.

The two sides also disagree on the legal standing of those departures. Zucman contends that changing an address does not automatically end tax residency. He points to Sergey Brin, who moved to Nevada but still commutes to Silicon Valley. Zucman believes legal experts view it as unlikely that these figures successfully severed their California ties before the deadline. Rauh maintains that the billionaires have likely established new residency with the help of top legal teams.

Rauh also predicts significant legal challenges. He argues that the retroactive nature of the tax could violate due process protections. The Supreme Court has upheld retroactive taxes in the past, but the conservative majority presents a risk. The measure also targets wealth held globally, which adds complexity. Rauh suggests these factors could lead to a partial or full strike down of the law in court.

The proposal includes specific provisions to prevent asset shifting. Unlike previous wealth taxes in countries like France, Prop 40 taxes business holdings, including shares in companies owned by billionaires. It also applies retroactively to residents as of early 2026 to limit last-minute moves. France scrapped its wealth tax in 2018 after loopholes allowed owners to shelter business assets. Zucman believes the California design addresses these historical failures.

The political stakes are high. The superrich have contributed $333 million to a group seeking to defeat the proposition, according to a recent report in The New York Times. Zucman views the vote as a potential catalyst for a federal wealth tax and an international movement. He notes that California billionaire wealth grew by 144% between 2023 and 2025, driven largely by the artificial intelligence sector.

Zucman and his co-authors note that the real wealth of the top 0.001% of households in California has multiplied by 25 since 1982. During the same period, average real family income in the state has only doubled. The state’s current tax system relies on income, which Zucman argues is irrelevant for those who structure finances to minimize reported earnings.