Economists Clash on Billionaire Tax: $100 Billion Gain vs. $39 Billion Loss

Economists at UC Berkeley and Stanford have issued conflicting forecasts for Proposition 40, a California ballot measure that would impose a one-time 5% tax on the net worth of billionaires. The measure, which applies retroactively to residents as of January 1, 2026, aims to generate funds for low-income health care. The academic debate centers on whether the tax will raise approximately $100 billion or cost the state $39 billion.

Gabriel Zucman, a professor at UC Berkeley and the Paris School of Economics, leads the argument for the tax. In a new book, We Need To Tax Billionaires, he and co-authors Jasper Boll and Emmanuel Saez estimate the measure could yield $100 billion. They base this figure on an assessment that California billionaire wealth reached $2.3 trillion by mid-2026. This wealth grew 144% between 2023 and 2025, driven largely by the artificial intelligence boom.

Zucman argues that existing income taxes fail to capture the assets of the ultra-wealthy because they can structure finances to generate little taxable income. He contends that a wealth tax addresses this loophole. He predicts the measure will spark a national and international movement to tax the rich, stating that California’s action will be the beginning of a broader U.S.-wide movement.

Joshua Rauh, a senior fellow at the Hoover Institution and Stanford professor, presents the opposing view. In an analysis co-authored with Benjamin Jaros, Rauh projects that Proposition 40 will drain $39 billion from the state. He argues that the tax will trigger an exodus of billionaires, reducing the state’s existing income tax revenue more than the new wealth tax will add.

A primary point of contention is the residency cutoff. Rauh claims that seven high-profile individuals, including Larry Page, Sergey Brin, and Peter Thiel, moved out of California before the January 1, 2026, deadline. He estimates these departures alone reduce potential revenue by around $30 billion. Zucman disputes this, arguing that legal experts believe these moves are likely invalid for tax purposes.

Zucman points to the case of Google co-founder Sergey Brin, who moved to Nevada but continues to commute to Silicon Valley. Zucman argues that a change of address does not necessarily end tax residency. Rauh counters that Brin and others have likely secured Nevada residency with the help of top legal and accounting teams.

The measure includes provisions designed to prevent asset protection strategies. Unlike previous wealth taxes, it taxes business holdings, including shares in companies run by the owners. It also applies to wealth held worldwide. Zucman notes that past wealth taxes often failed due to loopholes, such as France’s exemption for business assets before it scrapped the tax in 2018.

Legal challenges form a second pillar of Rauh’s skepticism. He warns that billionaires will mount constitutional challenges, potentially leading to parts of the law being struck down. He cites the retroactive nature of the tax and its reach beyond state borders as potential due process violations. The Supreme Court has upheld retroactive taxes in the past, but the novelty of this specific measure introduces uncertainty.

The financial stakes extend beyond state budget calculations. According to a recent report in The New York Times, supporters of the superrich have poured $333 million into a group aiming to defeat the proposition. This spending underscores the intensity of the fight over who bears the cost of federal Medicaid cuts and how states might fund their own services.