California Wealth Tax: $100 Billion Gain or $39 Billion Loss?

The outcome of a single ballot measure in California may determine the future of wealth taxation in the United States.

Voters will decide on Proposition 40, a one-time 5% tax on the net worth of billionaires who were state residents on January 1, 2026. The measure aims to generate revenue to offset federal cuts to Medicaid. Two prominent economists have published conflicting analyses on the proposal’s potential impact. Gabriel Zucman, a professor at UC Berkeley, co-authored a study estimating the tax would raise approximately $100 billion. Joshua Rauh, a senior fellow at the Hoover Institution at Stanford, argues the tax could cost the state $39 billion instead.

Zucman and his co-authors Jasper Boll and Emmanuel Saez base their estimate on the $2.3 trillion in wealth held by California billionaires by mid-2026. They note that this wealth increased by 144% between 2023 and 2025, largely due to the artificial intelligence boom. Zucman contends that the existing income tax system is inefficient for the ultra-wealthy because they can structure their finances to minimize taxable income. He argues that a direct tax on assets would close this gap and establish a precedent for federal and international wealth taxes.

Rauh and his co-author Benjamin Jaros present a counter-argument focused on migration and legal hurdles. They identify seven billionaires, including Larry Page, Sergey Brin, and Peter Thiel, who moved out of the state before the January 1 cutoff. Rauh estimates that these departures alone reduce the tax base by roughly $30 billion. Zucman disputes that these individuals successfully severed their tax residency, noting that the measure was announced in late October 2025, leaving less than two months to relocate. He points to Sergey Brin’s continued commute to Silicon Valley as evidence that a simple change of address does not equal a change in tax status.

The debate extends to legal viability. Rauh warns that the tax’s retroactive nature and extraterritorial scope could face constitutional challenges, particularly from the Supreme Court’s conservative majority. He cites concerns about due process protections and the valuation of privately held companies. Zucman acknowledges that past wealth taxes, including France’s, have faced criticism for loopholes and resident flight. However, he points to Norway, which has had a wealth tax since 1892, as a case where recent rate increases caused limited exodus among the wealthy. The California proposal includes provisions to tax business holdings and applies retroactively to prevent last-minute moves, but the effectiveness of these measures remains untested in court.

The financial stakes are high for both sides. According to a recent report in The New York Times, a group opposing the proposition has raised $333 million, much of it from the superrich. The measure would tax a wide range of assets, including stocks, real estate, and luxury goods. While publicly traded stocks offer clear valuations, the assessment of illiquid assets like private companies or art collections presents logistical challenges. The final revenue figure will depend on how many billionaires retain their residency and whether the courts uphold the tax’s structure.