California’s proposed billionaire tax could generate far less revenue than supporters project and may ultimately leave the state nearly $39 billion worse off, according to a new analysis by two economists affiliated with Stanford University’s Hoover Institution. According to a report by Fortune, the warning comes as voters prepare to decide on Proposition 40 in the 3 November election. The ballot measure would impose a one-time 5% tax on the net worth of California residents who were billionaires as of 1 January 2026, with supporters claiming it could raise about $100 billion for the state, around 90% of which would be directed toward healthcare spending.
What Proposition 40 would do
The measure is on California’s November 3 ballot. It would impose a one-time 5 percent tax on the net worth of the state’s few hundred billionaires who were residents on January 1, 2026, with payment due in 2027. Those who choose to spread payments over five years would pay more. Real estate, pensions and most retirement accounts would generally be excluded.
Revenue estimate far below supporters’ projections
In a working paper published this month by the National Bureau of Economic Research (NBER), economists Benjamin Jaros and Joshua Rauh estimate the measure would raise only about $30 billion, with a likely range of $28 billion to $36 billion. That is less than one-third of the revenue forecast by proponents of the tax.According to the researchers, a major reason for the lower estimate is the migration of wealthy residents out of California. The study analysed Forbes billionaire rankings, real estate records and public relocation announcements to conclude that billionaire departures have already reduced the potential tax base by nearly 30%.The economists pointed to several high-profile billionaires who have publicly moved from California, including Peter Thiel and Google co-founders Larry Page and Sergey Brin. Together, seven billionaires who have announced relocations account for an estimated $540 billion in wealth, according to the study.
Why researchers forecast a $39 billion loss
The Stanford-affiliated economists argue that the larger issue is not the initial tax collection but the potential long-term loss of income tax revenue if wealthy residents continue leaving the state. The study estimates billionaire departures could reduce California’s annual income tax collections by between $1 billion and $3.5 billion. If those losses persist indefinitely, they would outweigh the one-time wealth tax proceeds by approximately $38.9 billion in present-value terms.To test various outcomes, the researchers ran 100,000 simulations using different assumptions for revenue generation and discount rates. They found that 85% of scenarios resulted in a net financial loss for the state. The findings represent a more pessimistic outlook than an earlier analysis from the Hoover Institution, which projected roughly $40 billion in revenue and a net loss of about $25 billion.
‘Billionaires can move’
The economists’ main explanation is that billionaires can leave. Using Forbes rankings, real estate reports and public relocation announcements, they estimate that departures have already eliminated nearly 30 percent of the proposed tax base. CBS News, citing the study, reported that seven billionaires who have publicly moved out of California account for about $540 billion in wealth, including Peter Thiel and Google co-founders Larry Page and Sergey Brin. The estimate also discounts the remaining base for the risk that courts strike the tax down. The new figure is a sharper downgrade than the authors’ earlier Hoover analysis, which projected about $40 billion in revenue and a $25 billion net loss.
Other economists disagree
Not all economists share the Stanford researchers’ conclusions. A separate study by economists Jasper Boll, Emmanuel Saez and Gabriel Zucman, also published through the NBER, argued that even if every billionaire permanently left California, it would take around 25 years for lost income tax collections to equal the projected $100 billion windfall from the tax. The authors also challenged the assumption that billionaire departures would have permanent effects. They argued that if California does not introduce recurring wealth taxes, some billionaires could eventually return, while newly created fortunes could replenish the state’s billionaire population.Meanwhile, California’s nonpartisan Legislative Analyst’s Office has offered a more moderate forecast, estimating the measure could raise tens of billions of dollars over several years while reducing annual income tax revenue by less than $1 billion.
Fierce political battle underway
The proposal has triggered one of California’s most expensive ballot fights. According to campaign finance disclosures cited by reports, technology billionaires have contributed more than $340 million to oppose the measure and support competing ballot initiatives. Sergey Brin alone has reportedly donated more than $100 million, while other donors include former Google chief executive Eric Schmidt, Palantir co-founder Peter Thiel, Stripe chief executive Patrick Collison and DoorDash CEO Tony Xu. Opponents have spent at least $21.2 million during the first 19 days of September, according to the report.California Governor Gavin Newsom has also opposed the billionaire tax, arguing it could encourage wealthy residents to leave the state along with their income tax payments. Earlier this month, Newsom endorsed Proposition 42, a competing ballot measure backed by Brin that would effectively block Proposition 40 by banning new state taxes on personal property and retroactive taxation.