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California voters are set to cast their ballots to determine the fate of a proposed billionaire tax that could see the Golden State lose wealthy residents and may not deliver the revenue advocates hope for.
The ballot measure, known as Proposition 40, would impose a one-time 5% wealth tax on taxpayers and trusts with assets in excess of $1 billion and use the revenue to fund state healthcare programs, public education and food assistance.
The tax would be payable over five years and covered assets would include businesses, securities, art, collectibles and intellectual property – though real property, pensions and certain retirement accounts would be exempt.
The threat of the wealth tax, which as drafted would apply retroactively to those who were California residents as of Jan. 1, 2026, has caused some prominent billionaires to move out of the state or relocate businesses – including Google co-founders Larry Page and Sergey Brin, Oracle founder Larry Ellison and PayPal co-founder Peter Thiel.
Proponents of the billionaire tax argue that it would bring in about $100 billion in revenue from the roughly $2.3 trillion in wealth held by the state’s billionaires in mid-2026, though a recent analysis suggests the tax could permanently shrink the state’s tax base over the long-term and with losses exceeding near-term revenue gains.
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Advocates contend that billionaires typically pay little in income taxes due to deriving much of their wealth from investments, so the wealth tax would raise additional revenue even after accounting for some departures and reductions in income taxes paid in California by those who leave the state.
UC Berkeley economists Gabriel Zucman and Emmanuel Saez co-authored a working paper with Paris School of Economics’s Jasper Boll that estimated the wealth tax could raise about $100 billion over the five-year collection window with minimal impact on income tax revenue, as billionaires pay about $3 billion a year, which represents 2.5% of California’s income tax base.
“We estimate that it could raise about $100 billion, with comparatively minor impacts on income tax revenue,” the economists wrote in the working paper. “Using empirical estimates of mobility responses to wealth taxation, we find that an annual wealth tax on California billionaires could raise substantial additional revenue even after accounting for income tax losses due to mobility.”
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However, a working paper by a pair of economists at the Hoover Institution, senior fellow Joshua Rauh and research fellow Benjamin Jaros, found that announced departures have reduced that tax base by about 30% and estimated collections would fall in the $28 billion to $36 billion range after assuming 10% avoidance by those subject to the tax.
They also conducted a net present value (NPV) analysis of the lost income tax revenue from billionaires, who contribute an estimated $3.3 billion to $5.8 billion per year, finding that over time those lost collections more than offset revenue received via the one-time wealth tax, with an estimated NPV of negative $38.9 billion.
It found that the NPV would be negative in about 85% of simulated outcomes, while it would be relatively small in about 15% of outcomes. Positive NPV suggests value is created on a net basis, while a negative NPV suggests a net loss over the time horizon.
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“These findings suggest that the Billionaire Tax Act will not fulfill the primary functions for which it was designed. Although the Act was designed to raise revenue, behavioral response prior to voting has eroded most of the projected tax base,” Rauh and Jaros wrote in their working paper.
“While the Act was framed as addressing a fiscal emergency, its one-time collections are roughly offset – and in most scenarios more than offset – by the present value of permanently lost income tax revenue,” the economists added.
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The Hoover Institution economists also noted that while the billionaire tax is being presented as a one-time measure, the legislature could amend it with a two-thirds vote without consulting voters – giving policymakers the ability to impose additional wealth taxes in the future.
