California voters are considering a proposed billionaire wealth tax that has produced strikingly different forecasts from economists. Supporters estimate Proposition 40 could collect about $100 billion, while a competing analysis projects that departures by wealthy residents and legal challenges could leave the state with a net loss of $39 billion. The disagreement centers on how billionaires and courts would respond.
The proposal would impose a one-time tax of 5% on billionaires' net worth, with certain assets excluded. It would apply to people who were California residents on January 1, 2026, with most proceeds designated for health care for low-income residents to offset federal Medicaid cuts. Approval would establish the first U.S. wealth tax aimed at billionaires, potentially influencing debates elsewhere about taxing the richest households.
Gabriel Zucman, an economist affiliated with UC Berkeley and the Paris School of Economics, supports the measure. His analysis with Jasper Boll and Emmanuel Saez puts California billionaires' combined wealth at $2.3 trillion by mid-2026. They found that their wealth grew 144% between 2023 and 2025, largely because of the artificial intelligence boom. Their revenue forecast applies the proposed tax rate and then deducts 10% for avoidance, evasion and possible departures before the residency deadline.
Stanford economist and Hoover Institution senior fellow Joshua Rauh argues that deduction understates the risks. In research with Benjamin Jaros, he identifies seven prominent billionaires as having left California before the cutoff, including Google co-founders Larry Page and Sergey Brin. Rauh estimates those departures would remove around $30 billion in potential revenue. Zucman disputes whether the individuals successfully ended their California tax residency, arguing that changing an address does not necessarily end a person's tax obligations to the state.
Legal uncertainty accounts for another large gap between the forecasts. Rauh questions whether provisions covering retroactive taxation, worldwide assets and valuations of privately held businesses would withstand constitutional challenges. The measure includes fallback provisions intended to preserve its operation if courts invalidate parts of it. Nevertheless, Rauh and Jaros halve their remaining revenue projection to account for litigation risks, bringing their estimate to around $30 billion. That reduction is an assumption about possible outcomes, which Zucman contests.
Rauh and Jaros then factor in lost income tax receipts from additional billionaires they expect to leave after passage. Rauh argues that even a one-time levy could encourage departures if wealthy residents anticipate further wealth taxes. His calculation assumes the resulting income tax losses persist indefinitely, producing the projected $39 billion net loss. Zucman questions why residents would move if relocation cannot erase an existing retroactive liability.
Zucman also challenges counting losses associated with feared future wealth taxes without including any revenue those taxes might generate. He argues that some of the richest residents already pay relatively little income tax, limiting the damage from their departure. The competing estimates leave voters weighing both economic forecasts and unresolved legal questions as they decide whether California should undertake the tax experiment.
