Economists clash on California billionaire tax

Gabriel Zucman and Joshua Rauh released competing analyses of California’s proposed billionaire wealth tax this week. Zucman, an economist at UC Berkeley, argues the measure will generate approximately $100 billion in revenue. Rauh, a Stanford economist, contends the tax will actually drain $39 billion from state coffers. The two studies offer sharply different predictions for voters deciding on Proposition 40 ahead of the November election.

Proposition 40 proposes a one-time, 5% tax on the net worth of individuals with assets exceeding one billion dollars. The tax applies retroactively to anyone who was a California resident on January 1, 2026. Revenue would primarily fund healthcare for low-income residents to offset federal Medicaid cuts. The measure taxes a wide range of assets, including stocks, real estate, and personal property like yachts and artwork.

Zucman, who co-authored the analysis with Jasper Boll and Emmanuel Saez, estimates California billionaires hold $2.3 trillion in wealth as of mid-2026. They calculated this figure by taking 5% of that total and reducing the result by 10% to account for avoidance and evasion. Zucman argues that current income taxes fail to capture the wealth of the super-rich because they can structure finances to minimize taxable income. He believes the new tax will address this gap and fund essential public services.

Rauh, writing with Benjamin Jaros, disputes the revenue projections. He argues that at least seven prominent billionaires left California before the January 1 residency cutoff. Those individuals include Larry Page, Sergey Brin, Peter Thiel, Don Hankey, Steven Spielberg, Travis Kalanick, and David Sacks. Rauh estimates these departures removed $30 billion in potential revenue from the tax base. He further predicts that constitutional challenges will reduce the final take even more.

The debate centers on whether those seven billionaires successfully severed their ties to California. Zucman says legal experts he consults believe the move is likely insufficient to change tax residency. He points to Sergey Brin as an example, noting that Brin moved to Nevada but still commutes to Silicon Valley. Rauh counters that these figures likely hired top legal teams to establish Nevada residency before the deadline. He maintains that their wealth is now beyond the state's reach.

Past wealth taxes offer a mixed record. France eliminated its wealth tax in 2018 after critics argued it drove many residents away. Norway, which has had a wealth tax since 1892, saw few departures after recent tax increases. Zucman cites the Norwegian example to argue that flight is manageable. Prop 40 designers included provisions to block common loopholes, such as taxing business holdings and using the retroactive residency date to prevent last-minute moves.

The wealthy have spent $333 million to oppose the proposition, according to a recent report. This funding exceeds typical campaign expenditures for a single measure. The outcome will determine if California becomes the first state to implement a billionaire-specific wealth tax. Courts may also weigh in, as Rauh argues the retroactive nature and extraterritorial reach of the tax could face due process challenges. The legal battle will likely shape the final revenue impact.