California voters decide billionaire tax as economists clash over revenue

California voters will decide on November 2 whether to implement the nation's first wealth tax targeting billionaires. Proposition 40 proposes a one-time 5% levy on the net worth of individuals who resided in the state on January 1, 2026. The measure aims to generate funds primarily for low-income health care to offset federal Medicaid cuts.

Economists disagree sharply on the tax's financial impact. Gabriel Zucman, an economist at UC Berkeley and the Paris School of Economics, estimates the tax will raise approximately $100 billion. He co-authored an analysis suggesting California billionaire wealth reached $2.3 trillion by mid-2026. Zucman argues the tax addresses a gap where the superrich accumulate assets while paying minimal income tax.

Joshua Rauh, a senior fellow at the Hoover Institution at Stanford, presents a contrasting view. His analysis, co-authored with Benjamin Jaros, concludes the tax could cost the state $39 billion. Rauh argues that an exodus of wealthy residents will damage the state economy and reduce existing income tax revenue. He believes the proposal will fail to meet its revenue goals due to legal challenges and asset transfers.

The dispute centers on how many billionaires will qualify for the tax. Rauh identifies seven individuals, including Larry Page, Sergey Brin, Peter Thiel, Don Hankey, Steven Spielberg, Travis Kalanick, and David Sacks, as having left California before the January 1, 2026, cutoff. He estimates these departures reduce potential revenue by about $30 billion. Zucman disputes this count, noting that many of these individuals, such as Brin, still commute to Silicon Valley. Zucman believes legal standards for residency will keep these fortunes within the tax base.

Zucman’s estimate assumes a 10% reduction in projected revenue to account for avoidance and evasion. He calculates this by applying the 5% rate to the estimated $2.3 trillion in billionaire wealth. Rauh contends this allowance is too optimistic. He points to past wealth taxes in other countries, such as France, which he describes as failures due to loopholes and resident departures. Zucman counters that new design features in Proposition 40, such as taxing business holdings and using a retroactive residency date, address these historical issues.

Legal challenges are expected to shape the tax's final outcome. Rauh notes that billionaires may file constitutional challenges, particularly regarding the retroactive nature of the tax. The proposal targets wealth held globally based on prior residency in California. Rauh argues this extraterritorial reach and the valuation of privately held companies could invite court rulings that strike down parts of the measure. The Supreme Court's conservative majority adds uncertainty to these legal prospects.

Supporters of the measure have spent significant resources to influence the vote. A recent report in The New York Times indicates that the superrich have poured $333 million into a group opposing the proposition. This spending reflects the high stakes of the policy experiment. The outcome in California may serve as a test case for future wealth tax proposals at the federal level and internationally.