California voters are considering Proposition 40, a proposal that would create the first wealth tax in the United States aimed specifically at billionaires. The measure would impose a one-time 5% levy on the net worth of people who were California residents on January 1, 2026, with most of the proceeds directed toward health care for low-income residents and offsetting federal Medicaid cuts.
The proposal has become a major test of competing views about taxing the superrich. Economist Gabriel Zucman, of UC Berkeley and the Paris School of Economics, co-authored an analysis estimating that the tax could generate about $100 billion for California. Stanford economist Joshua Rauh and Benjamin Jaros reached the opposite conclusion, arguing that the measure could eventually cost the state $39 billion.
Zucman, Jasper Boll and Emmanuel Saez estimate that California billionaires held about $2.3 trillion in wealth by mid-2026. They calculated the potential tax revenue by applying the 5% rate and reducing the result by 10% to account for avoidance, evasion and billionaires who may have moved before the residency cutoff. Their analysis also projects comparatively limited effects on existing income-tax revenue.
Zucman argues that income taxes do not adequately capture billionaire wealth because affluent taxpayers can structure their finances to report little taxable income. In his view, Proposition 40 could reduce inequality, limit the political influence of the wealthiest individuals and provide substantial funding for public services. He also sees the measure as a possible starting point for broader wealth-tax efforts in the United States and internationally.
Rauh disputes the assumptions behind that estimate. He says at least seven billionaires—including Larry Page, Sergey Brin, Peter Thiel, Don Hankey, Steven Spielberg, Travis Kalanick and David Sacks—had already left California before the January 1 deadline. He estimates that those departures alone could reduce potential revenue by around $30 billion.
Zucman questions whether those individuals successfully ended their California tax residency. He argues that moving across state lines is not necessarily enough to change a person’s tax status, particularly because Proposition 40 was announced only about two months before the cutoff. Rauh maintains that some, including Brin, likely established residency elsewhere with the help of professional advisers.
The two economists also differ over the likelihood of legal challenges. Rauh says the measure’s retroactive provisions, its taxation of assets held outside California and the valuation of privately held companies could face constitutional objections. His central estimate assumes that legal uncertainty would eliminate roughly half of the revenue remaining after accounting for departures, leaving about $30 billion.
Rauh and Jaros further argue that more billionaires could leave California after the tax is enacted. They assume that the state would lose future income-tax revenue from those departures, potentially for an extended period. Combining those losses with their estimate of the wealth-tax proceeds, they conclude that Proposition 40 could cost the state $39 billion overall.
Zucman rejects that calculation as incomplete because it includes potential income-tax losses associated with future wealth taxes but does not count revenue from such taxes. He also argues that some billionaires, including Page and Brin, pay relatively little in income taxes, meaning their departure might have a smaller fiscal effect than Rauh’s analysis suggests. Rauh responds that public disclosures do not provide a complete picture of billionaire income-tax payments and says his approach follows standard methods for evaluating tax proposals.
Whether billionaires would leave is also tied to California’s technology sector. The Bay Area remains a major center for artificial intelligence, attracting three-quarters of US AI funding in 2025 and more than half of global AI funding, according to the Bay Area Council Economic Institute. Zucman argues that this concentration of companies, workers and investors could continue to attract billionaires despite the tax.
The proposal’s supporters have attempted to address problems associated with wealth taxes in other countries, including loopholes and the relocation of wealthy taxpayers. Proposition 40 would cover business holdings, including shares in companies controlled by billionaires, and its one-time retroactive structure is intended to limit the ability to avoid the levy by moving away. Whether those provisions withstand legal challenges and prevent an exodus remains central to the dispute.
The debate has drawn substantial opposition from wealthy individuals. According to a recent New York Times report cited in the article, opponents have contributed $333 million to a group seeking to defeat the proposition. The measure’s outcome could therefore influence not only California’s tax policy but also the wider national debate over how to tax billionaire wealth.
Sources: NPR News.