$333 million spent to stop California's 5% billionaire tax

Supporters of a new California wealth tax have poured $333 million into a group fighting to defeat Proposition 40, according to a recent report in The New York Times. The measure proposes a one-time, 5% tax on the net worth of billionaires who were residents of the state on January 1, 2026.

The proposal creates a divergence in economic forecasts. Gabriel Zucman, a professor at UC Berkeley and the Paris School of Economics, co-authored an analysis estimating the tax will raise approximately $100 billion. Joshua Rauh, a senior fellow at the Hoover Institution at Stanford, co-authored a competing study concluding the tax could cost the state $39 billion.

Zucman and colleagues Jasper Boll and Emmanuel Saez base their estimate on total California billionaire wealth of $2.3 trillion as of mid-2026. They calculated this figure by applying the 5% rate to that wealth and subtracting a 10% allowance for avoidance, evasion, and residency changes. Their data indicates that billionaire wealth in the state grew by 144% between 2023 and 2025, driven largely by the artificial intelligence sector.

Rauh argues that the 10% deduction for avoidance is too low. He points to at least seven high-profile billionaires who left California before the January 1, 2026, residency cutoff. These individuals include Larry Page, Sergey Brin, Peter Thiel, Don Hankey, Steven Spielberg, Travis Kalanick, and David Sacks. Rauh estimates these departures alone reduce potential revenue by around $30 billion.

Zucman disputes the impact of those departures. He notes that Proposition 40 was announced in late October 2025, giving residents only two months to change their legal status before the cutoff. He cites the case of Google co-founder Sergey Brin, who moved to the Nevada side of Lake Tahoe. Zucman argues that Brin still commutes to Silicon Valley for work, suggesting a change of address does not automatically end California tax residency.

The debate also centers on legal challenges. Rauh contends that billionaires will sue to block the tax, citing constitutional due process concerns regarding its retroactive nature. The tax applies to wealth held worldwide, which adds complexity to valuation and enforcement. Rauh believes the Supreme Court's conservative majority poses a risk to the measure's survival.

Past wealth taxes in other countries have often failed due to loopholes. France removed its wealth tax in 2018 after exempting qualifying business assets, a provision that reduced revenue. Proposition 40 differs by taxing business holdings, including shares in companies run by billionaires, to plug that specific leak.

The revenue from Proposition 40 is earmarked primarily for health care for low-income Californians. The funds are intended to offset federal cuts to Medicaid. The measure would tax a wide range of assets, including stocks, real estate, yachts, and art.

Voters will decide on the measure on Election Day. The outcome will determine if California implements the first state-level wealth tax in the United States. The result may influence national and international discussions on taxing the superrich.

Zucman says the measure could start a global movement. Rauh warns it may drain state coffers. Both economists agree the legal and economic outcomes depend on how courts interpret residency and valuation rules.