One Tax, Two Math Problems: Why Economists Can't Agree on California's Billionaire Levy

One Tax, Two Math Problems: Why Economists Can't Agree on California's Billionaire Levy

A One-Time 5% Levy Goes to the Ballot on Nov. 3

On November 3, Californians vote on Proposition 40, a one-time 5% tax on the worldwide net worth of anyone worth more than $1 billion who resided in the state on January 1, 2026, with some assets exempted. Roughly 200 billionaires fall in scope. About 90% of the proceeds would fund health care for low-income residents, backfilling federal Medicaid cuts, with 10% for food assistance and education.

$100 Billion vs. $30 Billion: The Revenue Gulf

Gabriel Zucman of UC Berkeley, with Jasper Boll and Emmanuel Saez, estimates the levy would raise about $100 billion: 5% of a roughly $2.3 trillion wealth base, trimmed by 10% for avoidance, evasion, and pre-cutoff departures, with comparatively minor income-tax fallout. Joshua Rauh of Stanford and Benjamin Jaros of the Hoover Institution, in an NBER working paper, put gross collections at $28 billion to $36 billion, centered near $30 billion — less than a third of Zucman's figure. After income-tax losses from departing billionaires, they compute a negative net present value of $38.9 billion for the state.

Seven Big Names Left Early, Taking $30 Billion With Them

Rauh and Jaros argue at least seven famous billionaires left California before the January 1, 2026 residency cutoff: Larry Page, Sergey Brin, Peter Thiel, Don Hankey, Steven Spielberg, Travis Kalanick, and David Sacks. Those exits alone, they say, erased around $30 billion of potential revenue. Zucman disputes this, arguing that Brin and others may not have severed California tax residency and that some of those fortunes remain within reach.

Courts, Simulations, and the 85% Chance of a Net Loss

The Stanford/Hoover authors halve their remaining revenue estimate to price in legal uncertainty over the tax's constitutionality — a judgment call, not a court ruling, which Zucman rejects. They further estimate billionaire departures would cost California $1 billion to $3.5 billion a year in lost income taxes; if permanent, the discounted shortfall exceeds the one-time haul. Across 100,000 simulations with varying revenue and discount assumptions, 85% end in a net loss. The nonpartisan Legislative Analyst's Office splits the difference: "tens of billions" over several years at a cost of under $1 billion a year in income taxes.

Newsom Says No as Zuckerberg Threatens to Walk

Governor Gavin Newsom opposes Prop 40 and backs Proposition 42, a Brin-funded rival that would ban retroactive taxes on personal property. Props 41 and 42 are countermeasures: if either wins more yes votes than Prop 40, the wealth tax cannot take effect. An October 21 Meta filing revealed Mark Zuckerberg told a board committee he was considering leaving California if the tax passes, leveraging the threat into new stock compensation. Opponents, mostly tech billionaires, have spent over $340 million against the measure, with Brin contributing more than $100 million.

Over 100 Economists Object While Six Nobelists Endorse

The profession is split. More than 100 economists signed a letter opposing the tax, arguing the base is highly mobile and the levy would damage California's image as a place to invest. A survey of 105 tax scholars found 69.5% would vote no. On the other side, six Nobel laureates — including Paul Krugman, Joseph Stiglitz, and Daron Acemoglu — endorsed the measure, arguing venture funding rose after its announcement and that health, education, and infrastructure spending drives growth. Polls show the lead shrinking: 45% yes to 42% no in September, 46% to 43% in late October, down from a 19-point margin in March.

What Comes Next: A Three-Way Ballot Fight, Then Court

The vote is only round one. If Prop 40 passes and outpolls Props 41 and 42, California would enact America's first-ever wealth tax — and face near-certain constitutional litigation, the very risk behind Rauh's 50% legal haircut. If it fails or is overridden, the health-care hole remains, with roughly $100 billion in federal Medicaid cuts hitting over five years. Either way, the ledger of billionaires voting with their feet will anchor the next tax fight.