Stanford economist predicts California wealth tax will cost state $39 billion

Californians will decide on November 3 whether to approve a one-time 5% tax on the net worth of billionaires, a measure that could generate approximately $100 billion in new revenue or cost the state $39 billion.

The discrepancy stems from a dispute between two prominent economists over how many wealthy residents will leave the state and how the tax will hold up in court. The proposal, known as Proposition 40, targets individuals who were California residents on January 1, 2026.

Gabriel Zucman, a professor at UC Berkeley and the Paris School of Economics, co-authored an analysis estimating the tax will raise about $100 billion. His team calculated that California billionaires held $2.3 trillion in wealth by mid-2026. They projected this figure would grow by 144% between 2023 and 2025, driven largely by the artificial intelligence sector.

Zucman argues that the income tax system fails to capture the wealth of the top 0.001% because these individuals can structure their finances to minimize taxable income. He believes a direct wealth tax will address this gap and help fund health care for low-income Californians, offsetting federal cuts to Medicaid.

Joshua Rauh, a senior fellow at the Hoover Institution and Stanford University, disagrees. In a study co-authored with Benjamin Jaros, Rauh estimates that Proposition 40 will actually cost the state $39 billion. He argues that the tax will trigger an exodus of billionaires, reducing the state's existing income tax revenue from the remaining wealthy residents.

Rauh claims that at least seven high-profile billionaires moved out of California before the January 1, 2026, cutoff date. The individuals he lists are Larry Page, Sergey Brin, Peter Thiel, Don Hankey, Steven Spielberg, Travis Kalanick, and David Sacks. He estimates these departures alone reduced potential revenue by around $30 billion.

Zucman disputes the impact of these moves. He notes that Proposition 40 was announced in late October 2025, giving residents only two months to establish residency elsewhere. He argues that a change of address does not automatically end tax residency, pointing to Google co-founder Sergey Brin, who lives in Nevada but still commutes to Silicon Valley. Zucman believes legal experts consider it unlikely that these individuals successfully severed their ties to the state.

The debate also centers on legal challenges. Rauh warns that the tax's retroactive nature and its reach into global assets could face constitutional attacks. He suggests the Supreme Court's conservative majority might strike down parts of the measure, particularly the provisions taxing wealth held outside California. Zucman counters that past wealth taxes in countries like Norway have shown that while some wealthy individuals may leave, the revenue gains often outweigh the losses.