California voters will decide whether to approve a proposed tax on billionaires. The measure could prompt more wealthy residents to leave the state, and it remains uncertain whether it would raise as much money as supporters predict.
Proposition 40 would charge taxpayers and trusts with assets above $1 billion a one-time tax of 5%. The money would go toward state health programs, public schools and food assistance.
The tax could be paid over five years. Assets covered would include businesses, stocks and other securities, art, collectibles and intellectual property. Real estate, pensions and some retirement accounts would be exempt.
As drafted, the measure would apply retroactively to people who lived in California on Jan. 1, 2026. The proposal has already been followed by departures or business relocations involving several high-profile billionaires, including Google co-founders Larry Page and Sergey Brin, Oracle founder Larry Ellison and PayPal co-founder Peter Thiel.
Supporters say the tax could raise about $100 billion from the estimated $2.3 trillion in wealth held by California billionaires in mid-2026. But a recent analysis argues that, over time, the measure could permanently reduce the state’s tax base, with losses exceeding the initial revenue.
Google co-founder criticizes California’s proposed billionaire tax
Advocates say billionaires often pay relatively little in income tax because much of their wealth comes from investments. In their view, a wealth tax could bring in significant additional revenue, even if some taxpayers leave and California loses some of the income taxes they would otherwise have paid.
A working paper by UC Berkeley economists Gabriel Zucman and Emmanuel Saez, along with Jasper Boll of the Paris School of Economics, estimated that the tax could collect around $100 billion over five years. They projected only a limited effect on income-tax receipts, noting that billionaires pay about $3 billion a year, or roughly 2.5% of California’s income-tax revenue.
The researchers said their estimates account for people potentially moving away. Based on past responses to wealth taxes, they concluded that the measure could still generate substantial revenue after factoring in income-tax losses tied to departures.
California entrepreneur warns of a wave of business departures
A separate working paper by Hoover Institution economists Joshua Rauh and Benjamin Jaros reached a less optimistic conclusion. They estimated that announced departures had already reduced the potential tax base by about 30%. Assuming 10% tax avoidance among those covered, they put likely collections at between $28 billion and $36 billion.
Rauh and Jaros also examined the long-term value of income taxes that California could lose if billionaires leave. They estimated those taxpayers currently contribute between $3.3 billion and $5.8 billion annually. In their analysis, the present value of lost income-tax revenue outweighed the proceeds from the one-time wealth tax, producing an estimated net present value of negative $38.9 billion.
Their simulations produced a negative result in about 85% of cases. In the remaining 15%, the net effect was relatively small. A positive net present value indicates an overall gain across the period studied; a negative figure points to a net loss.
Economist warns the proposed tax could harm California
Rauh and Jaros wrote that departures before the vote had already eroded much of the tax base the measure was intended to reach. They argued that the proposal was unlikely to achieve its main goals.
They also said that although the measure was presented as a response to a fiscal emergency, its one-time revenue would be roughly canceled out—or more than canceled out in most of their scenarios—by the long-term loss of income-tax revenue.
The Hoover Institution economists added that lawmakers could change the measure with a two-thirds vote, without returning it to voters. That, they noted, could allow future legislatures to impose additional wealth taxes.
