California Wealth Tax: Billionaires' Exit Threat vs. $100 Billion Revenue

California voters face a decision on Proposition 40, a measure that would impose a one-time 5% tax on the net worth of billionaires who were state residents on January 1, 2026. Two prominent economists have published competing analyses that yield drastically different financial projections for the state.

Gabriel Zucman, an economist at UC Berkeley and the Paris School of Economics, co-authored a study estimating the tax will raise approximately $100 billion. Zucman, who helped design wealth tax proposals for presidential candidates Elizabeth Warren and Bernie Sanders, argues the tax addresses a critical gap in the current system where billionaires often pay little income tax. He and co-authors Jasper Boll and Emmanuel Saez calculated that California billionaires hold $2.3 trillion in wealth, a figure that has grown 144% between 2023 and 2025 largely due to the artificial intelligence boom.

Zucman and his team arrived at the $100 billion figure by applying a 5% rate to the total wealth pool and reducing the total by 10% to account for potential avoidance or evasion. The revenue would be earmarked primarily for low-income healthcare to offset federal Medicaid cuts. Zucman believes the measure will spark a national and international movement to tax the superrich.

Joshua Rauh, a senior fellow at Stanford University’s Hoover Institution, co-authored a counter-analysis with Benjamin Jaros. They estimate the tax will actually cost California $39 billion. Rauh argues that the tax will trigger an exodus of wealthy residents and face successful legal challenges that reduce state income tax collections. He contends that the 10% reduction for avoidance assumed by Zucman is too optimistic.

A central point of contention involves seven high-profile billionaires: Larry Page, Sergey Brin, Peter Thiel, Don Hankey, Steven Spielberg, Travis Kalanick, and David Sacks. Rauh asserts these individuals moved out of California before the January 1, 2026, residency cutoff, removing their fortunes from the tax base. He calculates this departure reduced potential revenue by around $30 billion.

Zucman disputes this claim, citing legal experts who believe the rapid moves are insufficient to end California tax residency. He points to Sergey Brin, who relocated to the Nevada side of Lake Tahoe but still commutes to Silicon Valley. Zucman argues that a simple change of address does not sever tax ties, especially since the proposition was announced in late October 2025, giving residents only two months to relocate.

Rauh also raises constitutional concerns, suggesting the Supreme Court’s conservative majority may strike down parts of the measure. He cites the retroactive nature of the tax and its application to wealth held globally as potential violations of due process. According to a recent New York Times report, the superrich have contributed $333 million to a group seeking to defeat the proposition, underscoring the high stakes of the vote.

The debate highlights the complexity of valuing illiquid assets such as private equity and real estate. While most billionaire wealth is in publicly traded stocks with transparent prices, other assets require complex valuation methods. The outcome of the vote will determine if California becomes the first U.S. state to implement a wealth tax, setting a precedent for future tax policy.