Economists split on $100 billion California wealth tax outcome

Two leading economists have produced diametrically opposed calculations regarding the financial impact of California's proposed Proposition 40. Gabriel Zucman of UC Berkeley and the Paris School of Economics estimates the measure will generate approximately $100 billion in revenue. Joshua Rauh of Stanford University and the Hoover Institution argues the tax will instead cost the state $39 billion.

The debate centers on a one-time, 5% tax on the net worth of individuals classified as billionaires. The tax applies retroactively to residents of the state as of January 1, 2026. Revenue is earmarked primarily for healthcare for low-income Californians to offset federal cuts to Medicaid. Assets such as stocks, yachts, and art are included in the taxable net worth, while specific business assets are no longer exempted as they were in previous global wealth taxes.

Zucman, co-author of the analysis with Jasper Boll and Emmanuel Saez, bases his projection on an estimated $2.3 trillion in aggregate wealth held by California's billionaires by mid-2026. Their report notes that this figure equals the total annual income reported on tax returns by all Californians. They calculated a 144% increase in billionaire wealth between 2023 and 2025, driven largely by the artificial intelligence sector. Zucman and his colleagues reduced their initial revenue projection by 10% to account for avoidance and evasion.

Rauh, co-authoring with Benjamin Jaros, disputes the revenue potential. He argues that at least seven high-profile billionaires have already established residency elsewhere before the January 1, 2026, cutoff. The list includes Larry Page, Sergey Brin, Peter Thiel, Don Hankey, Steven Spielberg, Travis Kalanick, and David Sacks. Rauh calculates that these departures remove approximately $30 billion from the tax base. He contends that the remaining revenue is insufficient to offset the loss of standard income tax revenue from these individuals.

The two sides disagree on the legal status of these departures. Zucman argues that a change of address is insufficient to terminate state tax residency. He points to Sergey Brin's continued commute to Silicon Valley from Nevada as evidence that the move may not be legally final. Rauh maintains that these individuals have successfully established new residencies with the help of legal and accounting experts. Zucman notes that Proposition 40 was announced in late October 2025, leaving billionaires only two months to relocate before the deadline.

Legal challenges form the second pillar of Rauh's argument. He predicts a series of constitutional lawsuits against the tax, citing its retroactive nature and its application to global assets. Rauh suggests that the Supreme Court's conservative majority may strike down portions of the measure. He specifically questions whether taxing wealth based on prior residency violates due process protections. The tax also requires valuing privately held companies, a process Rauh views as legally contentious.

Supporters of the tax argue that past wealth taxes failed due to loopholes, such as exemptions for business assets in France. Proposition 40 taxes business holdings to close that gap. Zucman cites a working paper on Norway, which has maintained a wealth tax since 1892, as evidence that recent increases did not trigger a mass exodus of the wealthy. He argues that the flight of the rich is often overblown.

Opponents point to the history of wealth taxes as a cautionary tale. Zucman admits in his new book that past implementations have largely been failures. Critics often cite estimates that tens of thousands of millionaires left France while its wealth tax was in place. The dispute over whether those departures were caused by the tax or other factors remains unresolved.

The financial stakes have drawn substantial opposition funding. According to a recent report in The New York Times, superrich individuals have contributed $333 million to a group formed to defeat the proposition. This spending reflects fears that California's experiment could trigger a national or international movement to tax the superrich.

Voters will decide on the measure on Election Day. The outcome will determine whether California becomes the first U.S. state to implement a wealth tax. The legal and economic arguments presented by Zucman and Rauh suggest that the final revenue figure will depend heavily on court rulings and the residency status of specific individuals.