Economists Clash Over California’s Billionaire Wealth Tax Proposal
Two leading economists present opposite forecasts for Proposition 40, the state’s bid to tax billionaire wealth.
What Proposition 40 Would Do
Proposition 40 proposes a one‑time, 5% levy on the net worth of California residents who are billionaires as of January 1, 2026. The tax would apply retroactively and would exempt certain assets. Revenues are earmarked primarily for low‑income health‑care, aiming to offset recent federal Medicaid cuts.
The tax is described as a property‑type levy that extends beyond real estate to include stocks, yachts, artworks, and other high‑value items. While valuation can be complex, most of the wealth held by California billionaires is in publicly traded stocks, which are easy to assess.
Gabriel Zucman’s Optimistic Forecast
Berkeley economist Gabriel Zucman, who also teaches at the Paris School of Economics, co‑authored a study estimating that the wealth tax could generate “about $100 billion, with comparatively minor impacts on income tax revenue.” The figure comes from applying the 5% rate to an estimated $2.3 trillion of billionaire wealth and then reducing it by 10% to allow for avoidance, evasion, and potential residency changes.
Zucman argues that the existing tax system lets the superrich grow wealth while paying little income tax, making a wealth tax a tool to curb inequality and fund public services. He sees California’s move as a possible catalyst for a broader U.S. and even international movement.
Joshua Rauh’s Contrasting View
Stanford economist Joshua Rauh, a senior fellow at the Hoover Institution, teamed with Benjamin Jaros to produce a starkly different projection. Their analysis suggests that Proposition 40 would actually drain the state’s finances, estimating a cost of $39 billion.
Rauh contends that the 10% reduction used by Zucman is overly optimistic and that the tax could trigger an exodus of billionaires, eroding both the state’s economy and its existing income‑tax base.
The Stakes and the Money Behind the Fight
The vote pits a historic tax revolt from 1978 (Proposition 13) against a potential reversal toward wealth taxation. According to a recent New York Times report, opponents have poured $333 million into a group dedicated to defeating the measure.
Supporters argue the tax would address the rapid growth of billionaire wealth—reported as a 144% jump from 2023 to 2025, driven largely by the AI boom—and fund health‑care for low‑income Californians.
What the Data Shows About California’s Billionaires
Research by Zucman, Jasper Boll, and Emmanuel Saez notes that California’s billionaire wealth reached $2.3 trillion by mid‑2026, matching the total annual income reported on all state income‑tax returns. Over the longer term, the real wealth of the top 0.001 % of households has multiplied 25‑fold since 1982, while average real family income has only doubled.
Looking Ahead
As Election Day nears, the clash between Zucman’s and Rauh’s models underscores how Proposition 40 could become a template for future wealth‑tax debates across the United States and beyond. Voters will decide whether California leads a new era of taxing the superrich or retreats to its historic low‑tax stance.
