Proposition 40: Billionaire Tax Debate

California voters face a choice that could reshape the nation's approach to taxing the ultra-wealthy.

Proposition 40 proposes a one-time, 5% tax on the net worth of anyone who was a California resident on January 1, 2026. The measure applies to assets including stocks, real estate, and private equity. Revenue would primarily support health care for low-income residents to offset federal Medicaid cuts.

Gabriel Zucman, an economist at UC Berkeley and the Paris School of Economics, co-authored an analysis estimating the tax will generate about $100 billion. He and his colleagues Jasper Boll and Emmanuel Saez calculated this figure by taking 5% of the estimated $2.3 trillion in billionaire wealth and reducing it by 10% to account for avoidance and evasion. Zucman argues that current income taxes miss the mark because billionaires can structure their finances to avoid taxable income. He believes this levy will curb inequality and serve as a model for federal and international policy.

Joshua Rauh, a senior fellow at the Hoover Institution and Stanford economist, presents a contrasting view. He and Benjamin Jaros estimate the tax will cost the state $39 billion. Rauh argues that at least seven high-profile billionaires, including Larry Page and Sergey Brin, moved out of the state before the residency cutoff. He claims these departures alone remove approximately $30 billion from the tax base. Rauh also warns that constitutional challenges could strike down parts of the measure, particularly the retroactive provisions that target wealth held globally.

The dispute hinges on legal residency and potential court rulings. Zucman contends that moving across state lines is not enough to escape the tax, noting that some individuals like Brin still commute to Silicon Valley. He points to a study of Norway’s wealth tax, which has existed since 1892, suggesting that recent tax increases drove only about 100 wealthy residents to leave. Rauh counters that California is not a nation and that the state’s unique economic structure makes migration a more viable escape route.

The proposal includes specific provisions to address past failures of wealth taxes in other countries. Unlike the French tax that was repealed in 2018, Proposition 40 taxes business holdings and shares in companies owned by the taxpayers. The tax is retroactive and tied to residency status on a specific date to prevent last-minute moves. According to a New York Times report, supporters have raised $333 million to defeat the proposition, indicating the scale of the financial stakes involved.