California Votes on First U.S. Billionaire Tax as Economists Split on $100 Billion Payoff

Californians decide Tuesday whether to create America's first wealth tax aimed at billionaires, and the two economists at the center of the fight cannot agree on whether it would raise $100 billion or lose the state $39 billion.

Proposition 40 would impose a one-time 5% tax on the net worth of billionaires, with some assets exempted. It applies retroactively to anyone who was a California resident on January 1, 2026. The money would go mostly to health care for low-income Californians, to help offset federal cuts to Medicaid. NPR's Planet Money described the measure as potentially as consequential as Proposition 13, the 1978 tax revolt that became an opening salvo in the Reagan-era push to cut taxes, but in the opposite direction.

Gabriel Zucman, who splits his time between UC Berkeley and the Paris School of Economics, backs it. He helped design the national wealth-tax plans of Sens. Elizabeth Warren and Bernie Sanders and wrote a new book titled We Need To Tax Billionaires. With Jasper Boll and Emmanuel Saez, he estimates California billionaires' wealth reached $2.3 trillion by mid-2026, up 144% between 2023 and 2025, largely because of the AI boom. Taking 5% and trimming 10% for avoidance and departures, they put revenue at about $100 billion.

"If California says, 'We can tax billionaires. We can tax the wealthiest, most powerful people in the world,' it will be the beginning of not only a broader U.S.-wide movement, ultimately paving the way for a federal wealth tax — but I think it will be the beginning of an international movement," Zucman told Planet Money.

Joshua Rauh, a Stanford economist and Hoover Institution senior fellow, disagrees sharply. His analysis with Benjamin Jaros concludes that Prop 40 "would not raise $100 billion for the state." Instead, he calculates it would cost California $39 billion, by driving billionaires out and blowing a hole in the income tax revenue the state already collects from them. He argues the 10% haircut for avoidance is far too optimistic.

A central dispute is who is still reachable. Rauh says at least seven well-known billionaires, Larry Page, Sergey Brin, Peter Thiel, Don Hankey, Steven Spielberg, Travis Kalanick and David Sacks, left before the January 1 cutoff, cutting potential revenue by around $30 billion. Zucman says legal experts he trusts think it is unlikely any of them successfully ended California tax residency, because that takes more than a last-minute move. The measure was announced in late October 2025, leaving only about two months to relocate.

History is not on the idea's side. Zucman concedes in his book that past wealth taxes "by and large, have been abject failures," often because of loopholes and because rich people moved. France scrapped its wealth tax in 2018 after exempting qualifying business assets, and critics cite estimates that tens of thousands of millionaires left while it was in force, though how much of that the tax caused remains disputed. Prop 40's designers say they plugged those leaks by taxing business holdings and tying liability to a fixed past date. Zucman also points to a Norway study finding recent tax increases drove at most 100 wealthy people to leave without denting revenue gains.

Valuation is another headache, since a wealth tax reaches everything from stock to superyachts to paintings. Most California billionaire wealth sits in publicly traded shares, whose value is easy to determine.

The money flowing into the campaign shows how seriously the superrich take it. According to a recent New York Times report cited by NPR, they have poured $333 million into a group fighting the proposition. Some megabillionaires have already left the state since it was proposed. The result will be watched well beyond California, as a preview of a likely national fight over taxing the superrich.