California Billionaire Tax Debate Splits Economists Over $100 Billion Estimate

California voters face a binary choice on November 3 regarding Proposition 40, a measure that would impose a one-time 5% tax on the net worth of residents who were billionaires as of January 1, 2026. The proposal aims to generate revenue for low-income healthcare programs to offset federal Medicaid cuts. Two major academic groups have published conflicting analyses of the measure's financial impact.

Gabriel Zucman, an economist at UC Berkeley and the Paris School of Economics, co-authored a study estimating the tax would raise approximately $100 billion. Zucman, who also advised presidential candidates on similar wealth tax proposals, argues the tax addresses a gap in the current system where billionaires hold assets that generate little taxable income. His team calculated that California billionaire wealth reached $2.3 trillion by mid-2026, a 144% increase from 2023 driven largely by the artificial intelligence sector.

Zucman and co-authors Jasper Boll and Emmanuel Saez derived the $100 billion figure by applying the 5% rate to the $2.3 trillion wealth estimate. They then reduced that total by 10% to account for potential avoidance, evasion, and residency changes. The researchers noted that while California's top 0.001% of households have seen their real wealth multiply by 25 since 1982, average family income in the state has only doubled over the same period.

Joshua Rauh, a senior fellow at the Hoover Institution at Stanford University, co-authored a competing analysis with Benjamin Jaros. Rauh argues the tax would not generate revenue but instead cost the state $39 billion. He contends that the proposal would trigger an exodus of wealthy residents, damaging the state’s economy and reducing existing income tax collections.

Rauh’s calculation relies on the assumption that at least seven prominent billionaires had already established residency outside California before the January 1 cutoff. He names Larry Page, Sergey Brin, Peter Thiel, Don Hankey, Steven Spielberg, Travis Kalanick, and David Sacks. Rauh states these departures alone reduced potential revenue by around $30 billion. He believes these individuals successfully completed the legal process required to change their tax status.

Zucman disputes the assessment that these seven individuals are beyond the tax’s reach. He argues that changing tax residency requires more than a physical move and cites legal experts who believe the process takes time. Zucman points out that Proposition 40 was announced in late October 2025, leaving residents only two months to establish new residency before the cutoff date. He uses Google co-founder Sergey Brin as an example, noting that Brin moved to Nevada but still commutes to Silicon Valley for work.

The debate also centers on legal challenges. Rauh predicts that billionaires will file constitutional lawsuits against the tax. He specifically highlights the retroactive nature of the measure, which taxes individuals based on where they lived on a specific past date. Rauh argues this provision may violate due process protections, particularly given the Supreme Court’s current conservative composition. He also raises concerns about the tax’s extraterritorial scope and the valuation of privately held companies.

Supporters of the tax argue that previous global wealth taxes failed due to loopholes, such as exemptions for business assets. Proposition 40 is designed to close these gaps by taxing business holdings and applying the rate retroactively to residents of a specific date. Opponents point to the experience of France, which scrapped its wealth tax in 2018, citing estimates that tens of thousands of millionaires left the country while the tax was in effect. Zucman acknowledges this historical trend but argues the scale of departure has been overstated, citing a study of Norway that found recent tax increases led to only 100 wealthy departures.