Prop 40 Billionaire Tax Faces Revenue Doubts, Exit Risk

California’s Proposition 40 would impose a one-time 5% tax on the assets of Californians worth more than $1 billion. Even a Los Angeles Times columnist skeptical of the campaign against the measure concedes its fiscal effects remain uncertain. Business columnist Michael Hiltzik wrote that estimates depend on how billionaires respond, including whether they leave California.

The Money at Stake

The estimates vary widely. Economist Joshua D. Rauh of the Hoover Institution estimated in a March analysis that the tax would raise about $40 billion in direct revenue. Wealth-tax advocates Emmanuel Saez and Gabriel Zucman of UC Berkeley put the figure at $100 billion.

Rauh also calculated what California could lose. He estimated departing billionaires could take up to $5.8 billion in annual personal income-tax liability with them. In his central scenario, the tax’s net present value is negative $24.7 billion—a loss to the state over time.

The possible outcomes span a broad range. Rauh’s calculations run from a net present-value gain of $46.7 billion to a net loss of $208 billion. Economist Jeffrey L. Hoopes of the University of North Carolina cautioned, “These responses are necessarily assumptions. The exact magnitude cannot be known in advance — both author groups are predicting the future.” Hoopes said Rauh’s analysis seemed more plausible to him.

Rauh defended his use of the central scenario. “It’s completely appropriate for public discourse and conclusions to cite the central scenario,” he said by email. He added that his estimate “should be understood as an informed range rather than a precise forecast.”

Who’s Leaving, and Who’s Paying

Billionaires who could owe the tax largely fund the campaign against Proposition 40. Google co-founder Sergey Brin says he has moved out of California and gave $102 million to Building a Better California. That group is funding two ballot countermeasures designed to nullify Proposition 40 even if it wins a majority of votes.

The Bloomberg Billionaires Index estimated Brin’s net worth at $281 billion that week. If officials found that he had been a California resident on Jan. 1, he could owe as much as $14 billion and retain $267 billion.

Rauh names 10 billionaires with a combined net worth of $784.5 billion who are known or reported to have left California. Some departed before the tax proposal and had already taken steps to relocate their residency. Rauh said the total might be substantially understated.

Hiltzik challenged parts of the opposition’s evidence. He questioned two earlier Hoover Institution analyses—one on fast-food wages and another on government job growth—which Hoover retracted. Rauh wrote neither analysis. Hiltzik also criticized a Free Press piece by Mike Solana that relied on unnamed billionaires, though Rauh said those interviews “are not part of the analysis” of billionaire flight.

Design Questions and Political Resistance

The initiative would give the Legislature authority to change the tax, including extending it beyond one year or applying it to people worth less than $1 billion. Each chamber would need to approve any such change by a two-thirds vote. Opponents say the tax would apply to retirement accounts “for the first time.” The measure exempts pensions and most individual retirement accounts, with an exception for Roth-type accounts worth $10 million or more.

Opponents also say California would have trouble identifying and valuing taxable wealth, and that the tax’s retroactivity could trigger constitutional challenges. The measure applies to billionaires residing in California on Jan. 1, 2026, and calculates net worth on Dec. 31, 2026—a date 2 months and 15 days from now.

The political coalition behind Proposition 40 remains thin. Service Employees International Union-United Healthcare Workers West put the proposal on the ballot to help fill a healthcare-program budget gap created by the Republican Congress’ budget bill the previous year. The Democratic-dominated Legislature hasn’t embraced a wealth tax. Democratic Gov. Gavin Newsom and Xavier Becerra, the Democrat running to succeed the term-limited Newsom, both oppose Proposition 40. Other unions have been cool to the proposal, prompting internal disputes among organized-labor groups.

Why This Matters:

California relies heavily on a narrow base of high earners for its budget, so a policy that could push some of them out carries real fiscal risk. Economists on opposing sides agree the result depends on assumptions about behavior, not certainty. A one-time levy that the Legislature could extend or broaden with a two-thirds vote raises questions about durability and precedent. Retroactive residency rules bring legal exposure, too. When the governor, the leading Democratic candidate to replace him, and a Democratic Legislature all decline to support the idea, voters face a tax whose political home is divided. The state could gain revenue, or lose income-tax receipts for years.