Proposition 40: Economists split on California billionaire tax revenue

California voters face a choice on November 3, 2026, that echoes the tax revolt of 1978. Proposition 40 proposes a one-time 5% tax on the net worth of residents who were billionaires on January 1, 2026. The measure targets assets ranging from publicly traded stocks to private equity and luxury goods. Revenue would primarily fund health care for low-income residents to offset federal Medicaid cuts.

Economists have produced sharply conflicting projections for the measure's financial impact. Gabriel Zucman, a UC Berkeley professor, co-authored an analysis estimating the tax will generate approximately $100 billion. He calculated this by taking 5% of the $2.3 trillion in combined wealth held by California billionaires as of mid-2026. The team then reduced that figure by 10% to account for potential avoidance and evasion. Zucman argues the tax addresses a gap where the superrich accumulate wealth with low taxable income.

Joshua Rauh, a Stanford economist, reached the opposite conclusion. In a study co-authored with Benjamin Jaros, Rauh estimates Proposition 40 could cost the state $39 billion. His analysis suggests that wealthy residents will leave California, reducing the state's existing income tax revenue by more than the new wealth tax collects. Rauh argues that the 10% reduction for avoidance used by Zucman is too optimistic.

A central point of contention is residency. Rauh claims seven prominent billionaires, including Larry Page and Sergey Brin, left the state before the January 1 cutoff. He calculates these departures remove about $30 billion from the tax base. Zucman disputes this, noting the tax was announced in late October 2025, leaving little time to establish new residency. He points to figures like Brin, who moved to Nevada but still commutes to Silicon Valley. Zucman believes legal experts view these quick moves as insufficient to sever California tax ties.

Legal challenges also shape the debate. Rauh warns that conservative courts may strike down parts of the measure. He cites the retroactive nature of the tax as a potential due process violation. The tax also targets global assets, which could complicate enforcement. Past wealth taxes in countries like France faced similar hurdles and often failed due to loopholes and resident migration.

Proponents of Prop 40 have attempted to close these loopholes. The tax includes business holdings, unlike the French version scrapped in 2018. It is also a one-time event rather than an annual recurring tax. Supporters believe these features will limit the incentive to move. The super-wealthy have spent $333 million on a campaign to defeat the measure, according to a New York Times report.

The outcome will determine if California becomes the first U.S. state to levy a wealth tax. If passed, it may influence national and international policy. If failed, it could signal a barrier to taxing the superrich. The final numbers depend on how many billionaires successfully change their legal residency and how courts interpret the retroactive clauses.