Two economists studied California’s billionaire tax. They reached wildly different conclusions : Planet Money : NPR
An attendee holds an indication earlier than the beginning of a rally led by US Senator Bernie Sanders, Independent of Vermont, in the course of the marketing campaign kickoff for the California Billionaire Tax Act at The Wiltern in Los Angeles, February 18, 2026. Sanders is searching for the help of California voters for a November’s poll initiative of an emergency tax on billionaires to assist the state’s healthcare system. (Photo by Patrick T. Fallon / AFP through Getty Images)
PATRICK T. FALLON/AFP through Getty Images/AFP
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PATRICK T. FALLON/AFP through Getty Images/AFP
In 1978, California voters authorised Proposition 13, a historic tax revolt that grew to become a gap salvo within the Reagan revolution and its nationwide motion to slash taxes. Now, Californians are voting on Proposition 40, which may show to be simply as revolutionary — however in the wrong way: it could create America’s first-ever wealth tax focused at billionaires.
As Election Day approaches, economists have been duking it out over this proposed wealth tax. It may present a type of nerdy preview of a coming nationwide battle over taxing the superrich. Will this wealth tax assist rein in runaway inequality and fill the state’s coffers — or will it persuade billionaires to fireside up their personal jets and arrange residence in mansions outdoors the state? Some megabillionaires have already fled California because the tax was proposed.
On one facet of this debate is economist Gabriel Zucman, a number one advocate for taxing the superrich who splits his time between UC Berkeley and the Paris School of Economics. Zucman helped design the nationwide wealth tax proposals of Senators Elizabeth Warren and Bernie Sanders once they have been operating for president (which I coated again then in the Planet Money newsletter and podcast). He is the creator of a brand new e-book with a blunt title: We Need To Tax Billionaires. Naturally, he helps California’s wealth tax, and he co-authored an influential analysis estimating it may increase about $100 billion in income.
“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 tells Planet Money.
On the opposite facet of the talk is Stanford economist and Hoover Institution senior fellow Joshua Rauh. His evaluation, co-authored with Benjamin Jaros, involves a wildly different conclusion: the tax may result in an exodus of billionaires out of California, damaging the state’s financial system and blowing a gap within the revenue tax income the state already collects from billionaires.
“ It would not raise $100 billion for the state,” Rauh argues. Instead, he estimates, this tax may truly find yourself draining California’s state coffers. “ We calculate that Proposition 40 would cost the state of California $39 billion.”
It’s a traditional Berkeley-Stanford rivalry, however the stakes are a lot larger than a soccer recreation. California voters are deciding whether or not to pursue a historic wealth tax experiment, which may affect tax coverage across the nation, even the world. Indeed, the superrich, fearing that this wealth tax may spark a widespread motion, have poured a staggering $333 million into a bunch attempting to defeat this proposition, in response to a recent report in The New York Times.
A golden alternative within the Golden State?
The wealth tax Prop 40 proposes is fairly easy: a one-time, 5% tax on the web value of billionaires, with some belongings exempted. It would apply retroactively to any billionaire who was a resident of California on January 1, 2026. The cash could be earmarked largely for the well being care of low-income Californians, to assist offset federal cuts to Medicaid.
A wealth tax is type of like a property tax, besides it extends past actual property and taxes a complete vary of belongings: shares, superyachts, Basquiat work, dinosaur skeletons, Mercedes G Wagons, samurai swords, principally every thing a wealthy particular person owns. Of course, determining what all a billionaire’s stuff is value — particularly belongings that not often change palms — can get difficult. Do you worth a Picasso or a yacht by the worth initially paid, what it may promote for as we speak, by how a lot they’ve insured it for? And so on. That stated, a lot of the wealth held by California billionaires is in publicly traded shares, whose worth is simple to find out.
Zucman, along with Jasper Boll and Emmanuel Saez, launched an analysis of the California billionaire class and this proposed wealth tax.
“California billionaires’ wealth has reached $2.3 trillion by mid-2026, as large as all the annual income reported on income tax returns of all Californians,” they wrote. They discovered that California billionaire wealth had exploded by 144% between 2023 and 2025, thanks largely to the AI growth. “Over the longer run, the real wealth of California’s billionaire class — the top 0.001% richest households — has been multiplied by 25 from 1982 to 2026, while average real family income in California has only doubled.”
Zucman says an important downside with the present tax system in California, America, and past is that the superrich have been seeing their wealth snowball greater and greater whereas paying comparatively little in revenue taxes. Billionaires can construction their funds to generate little or no taxable revenue, making the revenue tax fee “totally irrelevant,” he argues. Zucman believes a wealth tax will assist tackle this, thereby serving to to battle rising inequality, counteract the political energy of “the oligarchs,” and lift much-needed funds for everybody else.
Zucman, Boll, and Saez estimated that the state wealth tax proposed by Prop 40 may increase “about $100 billion, with comparatively minor impacts on income tax revenue.” They arrive at that determine by taking 5% of their $2.3 trillion estimate of billionaire wealth, then lowering the projected income by 10% to account for avoidance, evasion, and the chance that some billionaires ended their California residency earlier than January 1, 2026.
Rauh argues that this 10% discount to account for billionaires avoiding the tax is simply too optimistic.
Why previous wealth taxes have been “abject failures”
As we’ve previously reported within the Planet Money newsletter, wealth taxes have been tried earlier than all over the world they usually have had a dismal observe document. Even Zucman, a wealth tax champion, writes in his new e-book that previous wealth taxes “by and large, have been abject failures.”
Zucman and his coterie of different (usually French) economists have spent plenty of time finding out why previous wealth taxes failed and have sought to design new ones that tackle these failures.
One essential downside was that wealth taxes tended to have loopholes that allowed the wealthy to shelter their belongings, making these taxes a leaky bucket. For instance, earlier than France scrapped its wealth tax back in 2018, it exempted qualifying enterprise belongings, together with shares in corporations their homeowners ran. That, Zucman says, was a giant loophole that drastically decreased the quantity of income it raised.
Another essential downside — which is on the middle of the talk on this California wealth tax proposal — is that some superrich individuals transfer to keep away from the tax. France grew to become a cautionary story, with critics usually pointing to estimates that tens of thousands of millionaires left whereas its wealth tax was in place. However, how a lot of that exodus was attributable to the wealth tax stays disputed.
Zucman acknowledges that the flight of wealthy individuals has been a problem with previous wealth taxes, however he additionally argues that this downside has been overblown. He, for instance, pointed to a recent working paper about Norway, which has had a wealth tax since 1892. It discovered that current will increase to this current wealth tax, alongside different tax will increase on the wealthy, drove at most 100 wealthy individuals to go away. But, it discovered, these departures did not do a lot to dent the ensuing features in wealth-tax income. That stated, Norway is a nation, not a state, and shifting to a different nation is a much bigger deal than, say, shifting from California to Nevada.
To keep away from the failures of previous wealth taxes, Prop 40’s designers have tried to plug potential leaks. Unlike France’s outdated wealth tax, it could tax enterprise holdings, together with shares in corporations that billionaires run. And by making it a one-time, retroactive tax tied to the place billionaires lived on January 1, 2026, they hope to stop billionaires from escaping the invoice by merely shifting away.
However, whether or not these provisions will truly work is on the coronary heart of the talk.
Are Prop 40 supporters simply California Dreamin’?
Rauh just lately launched a competing evaluation with a provocative conclusion: as a substitute of elevating $100 billion, as Zucman and the measure’s supporters declare, this wealth tax may finally value the state billions.
First, Rauh argues, not less than seven well-known billionaires had already left California earlier than the January 1, 2026, residency cutoff, placing their fortunes past the tax’s attain. Those billionaires are Larry Page, Sergey Brin, Peter Thiel, Don Hankey, Steven Spielberg, Travis Kalanick, and David Sacks.
Those departures alone, Rauh says, decreased the potential income from this wealth tax by “around $30 billion.”
Zucman, nevertheless, disputes that these fortunes are past California’s attain. He says the legal experts he trusts imagine it is unlikely that any of those billionaires efficiently ended their California tax residency earlier than the cutoff. Ending your residency, he argues, takes greater than a last-minute transfer throughout state strains. Prop 40 was designed with this in thoughts. It was introduced in late October 2025, giving billionaires solely about two months to ascertain residency elsewhere earlier than January 1, 2026. Talk a couple of New Year’s Day hangover.
Take Google co-founder Sergey Brin. Sure, he is moved simply throughout the border to the Nevada facet of Lake Tahoe — and in the meantime spent more than a hundred million dollars attempting to defeat Prop 40. But, Zucman says, he nonetheless incessantly commutes to work in Silicon Valley. A fast change of tackle, he argues, does not essentially imply you have left California behind for tax functions. Rauh counters that Brin, backed by what we will solely assume are one of the best accountants and attorneys, has doubtless succeeded in establishing Nevada residency. He stands by his assumption that Brin and the others are past the tax’s attain.
Like a lot of the talk over how a lot this tax will finally increase, this dispute has as a lot to do with the legislation because it does economics.
Which leads us to the second purpose Rauh believes this proposed wealth tax will increase a lot much less cash than its supporters hope: the courts. Billionaires, armed with one of the best attorneys cash should buy, will mount a slew of constitutional challenges to this tax. And given this wealth tax’s novelty — and the Supreme Court’s conservative majority — there’s an actual danger that not less than a part of Prop 40 could possibly be struck down.
For instance, Prop 40’s controversial retroactive provision. It would tax some billionaires based mostly on the place they used to dwell. Rauh argues that might violate the Constitution’s due course of protections, though the Supreme Court has upheld other retroactive taxes prior to now. The tax additionally reaches past California’s borders, focusing on wealth held all over the world, which may create authorized points. Rauh additionally raises authorized issues about how the tax would worth privately held corporations. He says that enterprise capital offers can put a worth on an organization that overstates what it is truly value. Taxing an proprietor’s share of that inflated worth, he argues, may create constitutional issues.
The architects of Prop 40 designed the legislation with authorized challenges in thoughts, and it has all kinds of fallback provisions meant to maintain the tax working if the courts strike down any a part of it. But how a lot income would survive these authorized battles? This is one other huge disagreement between Rauh and Zucman.
Rauh and Jaros estimate a wide array of potential outcomes. But their central estimate, which has generated loads of headlines, cuts the remaining projected income in half to account for authorized uncertainty. That is a powerful assumption — not a certainty about how the courts will rule — and Zucman disputes it.
After accounting for billionaire departures and the anticipated authorized challenges, Rauh and Jaros estimate the wealth tax would usher in solely “around $30 billion.”
But that is not the top of their gloomy estimate. Because Rauh and Jaros count on much more billionaires to flee the state if Prop 40 passes, taking their current revenue tax funds with them.
Zucman questions that prediction: if shifting will not essentially get billionaires out of paying this retroactive, one-time tax, why would they depart? They’re already on the hook, and this is not an annual tax.
Rauh’s reply: as a result of they are going to rationally concern that this would possibly not be the final wealth tax that California passes. The sense that California is changing into a hostile setting for the superrich may drive departures even when one other wealth tax by no means materializes, he argues. After all, Zucman and lots of different supporters of Prop 40 see this one-time tax as solely the start. Zucman advocates for an annual wealth tax in his e-book, and he advised us, yeah, he does not really need this to be a one-time tax.
The approach Rauh sees it, Prop 40 trades a stream of income-tax income sooner or later for a extra instant payout of wealth-tax income as we speak. His calculation assumes these revenue tax losses proceed indefinitely. All of which is how he and Jaros arrive at their surprising conclusion: “On net, the state loses $39 billion in expectation because of this tax,” Rauh argues.
Zucman objects that their calculation components in future revenue tax losses from billionaires fleeing feared wealth taxes — however not one of the income these hypothetical wealth taxes would usher in.
“That’s absurdly one-sided,” Zucman says. “You can’t just count the loss and not the gain.”
Zucman additionally argues that the revenue tax losses from departing billionaires could be smaller than Rauh predicts. Using public monetary disclosures, his group estimates that among the richest billionaires — together with Larry Page and Sergey Brin — pay comparatively little in revenue taxes.
Rauh defends their calculation, arguing it follows normal procedures for scoring tax proposals. “It would be absurd to count revenue from not yet proposed taxes,” he says. He additionally argues that the general public monetary disclosures Zucman and his group give attention to give an incomplete image of how a lot billionaires pay in revenue taxes.
The pull Of Silicon Valley
How a lot revenue tax income California may lose relies upon not simply on what billionaires at present pay, but in addition on what number of depart if Prop 40 passes. And the state has a strong magnet that might maintain them there: its thriving tech ecosystem.
For years, conservatives have been portray California as a progressive basket case, predicting that Democratic mismanagement would plunge its financial system down the tubes and ship wealthy individuals fleeing. Yet the state has grow to be the epicenter of the AI growth. In 2025, Bay Area corporations attracted three-quarters of all U.S. AI funding — and greater than half the worldwide complete — in response to the Bay Area Council Economic Institute.
Economists seek advice from this industrial clustering as “agglomeration.” Companies, staff, and buyers in the identical business profit from being close to each other. It’s like a big magnet for financial exercise. Zucman suggests these agglomeration results are so robust that billionaires will nonetheless need to dwell and work in California even when there’s a wealth tax.
Zucman factors to Mark Zuckerberg for instance. Rather than merely leaving California, Zuckerberg reportedly struck a deal with Meta’s board that might let him pay the tax with out sacrificing management of his firm. Essentially, the deal would let him promote nonvoting shares to cowl his potential wealth tax invoice whereas holding on to sufficient voting shares to maintain management of the corporate. In return, he agreed to remain in California for eight years, topic to situations, together with Meta remaining headquartered there.
Jensen Huang, the CEO of Nvidia, told Bloomberg in January that he was “perfectly fine” with paying the wealth tax envisioned by Prop 40. Under it, he could be on the hook for one thing like $8 billion. “I’ve got to tell you, I have not even thought about it once,” Huang stated. “We chose to live in Silicon Valley, and whatever taxes they would like to apply, so be it. I’m perfectly fine with it.”
Rauh, nevertheless, doubts that California’s tech ecosystem has sufficient gravity to maintain billionaires there if the tax passes. “Agglomeration effects are fragile,” he argues. A wealth tax may saddle startup founders with huge tax payments based mostly on their corporations’ valuations, even earlier than they’ve cashed out. Prop 40 consists of provisions that might enable qualifying taxpayers with illiquid wealth to defer funds, however Rauh argues these protections are insufficient.
“ You have to understand that the entire startup ecosystem of California is threatened by taxes like this,” Rauh argues. He predicts that “investors will pull out of California if the wealth tax is passed.”
Zucman hears echoes of an earlier battle in all these warnings about taxing wealth: the battle over taxing revenue again within the early twentieth century. Back then, he says, critics argued that an revenue tax would drive individuals away and damage the financial system.
He factors to Wisconsin’s adoption of a progressive revenue tax in 1911 as an important turning level. Two years later, America adopted the federal revenue tax we all know as we speak. Zucman hopes California can play an identical function for taxing wealth.
“I have little doubt that it will work very well for the state of California,” he says. “And then very quickly you’ll see other states doing the same.”
Ultimately, Zucman hopes this motion will result in a federal wealth tax. He acknowledges that billionaires are much less prone to transfer to keep away from a nationwide wealth tax than a state one.
Rauh additionally expects much less flight beneath a nationwide wealth tax. But he argues that such a tax would nonetheless discourage funding and threaten the U.S. financial system.
California voters are actually being deluged with adverts and shiny mailers in what has confirmed to be one of the costly poll fights within the state’s historical past. If wealth tax supporters have their approach, the remainder of America may face an identical alternative within the close to future. For now, it is as much as Californians to determine whether or not this wealth tax is a golden alternative or a expensive mistake.