Stanford Economists: California Wealth Tax Could Cost State $39 Billion

California’s proposed wealth tax could leave the state $39 billion poorer in today’s dollars, according to a working paper published this month by Stanford University economists Benjamin Jaros and Joshua Rauh through the National Bureau of Economic Research, Fortune reported. While supporters argue the measure will raise $100 billion primarily for healthcare, researchers warn that a mass exodus of ultra-wealthy residents will shrink the tax base so severely that ongoing income tax losses will ultimately outweigh the initial revenue.

Voters will decide the fate of the proposal on the November 3, 2026 ballot. Proposition 40 would impose a one-time 5 percent tax on the net worth of the state’s few hundred billionaires who held residency on January 1, 2026. The tax is due in 2027, with penalties for those who opt to spread payments over five years, though real estate, pensions, and most retirement accounts remain excluded from the calculation.

How Billionaire Departures Errode the Projected Tax Base

Jaros and Rauh estimate that the wealth tax will collect roughly $30 billion, falling well short of the $100 billion anticipated by proponents. The primary driver behind this shortfall is simple geography: billionaires can pack up and leave. Using Forbes rankings, real estate reports, and public relocation announcements, the Stanford researchers found that recent departures have already eliminated nearly 30 percent of the proposed tax base. Seven prominent billionaires who have publicly moved out of California account for roughly $540 billion in wealth, CBS News reported, noting that the group includes venture capitalist Peter Thiel and Google co-founders Larry Page and Sergey Brin.

Even so, a $30 billion payday is substantial. The core issue, according to the Stanford analysis, lies in what happens after the check clears. The researchers estimate that ongoing billionaire departures will cost California between $1 billion and $3.5 billion annually in lost income tax revenue. Running 100,000 simulations across various revenue and discount-rate assumptions, the authors found that 85 percent of plausible outcomes produce a net financial loss for the state.

Proponents of the measure strongly dispute these projections. Debru Carthan, vice president of the Service Employees International Union-United Healthcare Workers West (SEIU-UHW), told CBS News that the initiative’s “sole purpose is to ensure that billionaires finally pay their fair share to prevent a collapse of California’s healthcare system.” Other economists have reached different conclusions as well. A separate NBER study by Jasper Boll, Emmanuel Saez, and Gabriel Zucman suggested that even if every billionaire left permanently, it would take roughly 25 years for accumulated income tax losses to match a $100 billion windfall.

A High-Stakes Political Fight and Countermeasures on the Ballot

The ballot measure has triggered a massive political and financial clash. Tech billionaires have poured more than $340 million into opposing Proposition 40 and backing competing initiatives, according to the Guardian. Sergey Brin has emerged as the largest donor, contributing more than $100 million. Additional opposition funding has come from former Google CEO Eric Schmidt, Palantir co-founder Peter Thiel, Stripe CEO Patrick Collison, and DoorDash CEO Tony Xu.

Photo: reason.com

California Gavin Newsom has also thrown his weight against the tax, arguing it will drive away vital income tax revenue. On October 9, Newsom endorsed Proposition 42, a Brin-funded competing measure designed to bar retroactive taxes and ban new state taxes on personal property. Even if it passes, competing measures could keep it from taking effect, and it could take years to determine whether it ultimately leaves California better or worse off.

Public opinion remains sharply divided. A Citrin Center–Politico poll shows 46 percent of likely voters in favor of Proposition 40 and 43 percent opposed. Meanwhile, not every billionaire is heading for the exit. Nvidia CEO Jensen Huang recently stated that he would be comfortable paying an estimated $8 billion in taxes over five years, calling the ability to pay a privilege and urging people to move to California rather than flee.

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