In 1978, California voters approved Proposition 13, a historic tax revolt that became an opening salvo in the Reagan revolution and its national movement to slash taxes. Now, Californians are voting on Proposition 40, which could prove to be just as revolutionary — but in the opposite direction: it would create America's first-ever wealth tax targeted at billionaires.
As Election Day approaches, economists have been duking it out over this proposed wealth tax. It could provide a sort of nerdy preview of a coming national fight over taxing the superrich. Will this wealth tax help rein in runaway inequality and fill the state's coffers — or will it convince billionaires to fire up their private jets and set up residence in mansions outside the state? Some megabillionaires have already fled California since the tax was proposed.
On one side of this debate is economist Gabriel Zucman, a leading advocate for taxing the superrich who splits his time between UC Berkeley and the Paris School of Economics. Zucman helped design the national wealth tax proposals of Senators Elizabeth Warren and Bernie Sanders when they were running for president (which I covered back then in the Planet Money newsletter and podcast). He is the author of a new book with a blunt title: We Need To Tax Billionaires. Naturally, he supports California's wealth tax, and he co-authored an influential analysis estimating it could raise about $100 billion in revenue.
"If California says, 'We can tax billionaires. We can tax the wealthiest, most powerful people in the world,' it will be the beginning of not only a broader U.S.-wide movement, ultimately paving the way for a federal wealth tax — but I think it will be the beginning of an international movement," Zucman tells Planet Money.
On the other side of the debate is Stanford economist and Hoover Institution senior fellow Joshua Rauh. His analysis, co-authored with Benjamin Jaros, comes to a wildly different conclusion: the tax could lead to an exodus of billionaires out of California, damaging the state's economy and blowing a hole in the income tax revenue the state already collects from billionaires.
" It would not raise $100 billion for the state," Rauh argues. Instead, he estimates, this tax could actually end up draining California's state coffers. " We calculate that Proposition 40 would cost the state of California $39 billion."
It's a classic Berkeley-Stanford rivalry, but the stakes are much higher than a football game. California voters are deciding whether to pursue a historic wealth tax experiment, which could influence tax policy around the nation, even the world. Indeed, the superrich, fearing that this wealth tax could spark a widespread movement, have poured a staggering $333 million into a group trying to defeat this proposition, according to a recent report in The New York Times.
A golden opportunity in the Golden State?
The wealth tax Prop 40 proposes is pretty straightforward: a one-time, 5% tax on the net worth of billionaires, with some assets exempted. It would apply retroactively to any billionaire who was a resident of California on January 1, 2026. The money would be earmarked mostly for the health care of low-income Californians, to help offset federal cuts to Medicaid.
A wealth tax is sort of like a property tax, except it extends beyond real estate and taxes a whole range of assets: stocks, superyachts, Basquiat paintings, dinosaur skeletons, Mercedes G Wagons, samurai swords, basically everything a rich person owns. Of course, figuring out what all a billionaire's stuff is worth — especially assets that rarely change hands — can get complicated. Do you value a Picasso or a yacht by the price originally paid, what it might sell for today, by how much they've insured it for? And so on. That said, most of the wealth held by California billionaires is in publicly traded stocks, whose value is easy to determine.
Zucman, together with Jasper Boll and Emmanuel Saez, released an analysis of the California billionaire class and this proposed wealth tax.
"California billionaires' wealth has reached $2.3 trillion by mid-2026, as large as all the annual income reported on income tax returns of all Californians," they wrote. They found that California billionaire wealth had exploded by 144% between 2023 and 2025, thanks largely to the AI boom. "Over the longer run, the real wealth of California's billionaire class — the top 0.001% richest households — has been multiplied by 25 from 1982 to 2026, while average real family income in California has only doubled."
Zucman says a crucial problem with the existing tax system in California, America, and beyond is that the superrich have been seeing their wealth snowball bigger and bigger while paying relatively little in income taxes. Billionaires can structure their finances to generate little or no taxable income, making the income tax rate "totally irrelevant," he argues. Zucman believes a wealth tax will help address this, thereby helping to fight rising inequality, counteract the political power of "the oligarchs," and raise much-needed funds for everyone else.
Zucman, Boll, and Saez estimated that the state wealth tax proposed by Prop 40 could raise "about $100 billion, with comparatively minor impacts on income tax revenue." They arrive at that figure by taking 5% of their $2.3 trillion estimate of billionaire wealth, then reducing the projected revenue by 10% to account for avoidance, evasion, and the possibility that some billionaires ended their California residency before January 1, 2026.
Rauh argues that this 10% reduction to account for billionaires avoiding the tax is too optimistic.
Why past wealth taxes have been "abject failures"
As we've previously reported in the Planet Money newsletter, wealth taxes have been tried before around the world and they have had a dismal track record. Even Zucman, a wealth tax champion, writes in his new book that past wealth taxes "by and large, have been abject failures."
Zucman and his coterie of other (typically French) economists have spent a lot of time studying why past wealth taxes failed and have sought to design new ones that address those failures.
One crucial problem was that wealth taxes tended to have loopholes that allowed the rich to shelter their assets, making these taxes a leaky bucket. For example, before France scrapped its wealth tax back in 2018, it exempted qualifying business assets, including shares in companies their owners ran. That, Zucman says, was a big loophole that drastically reduced the amount of revenue it raised.
Another crucial problem — which is at the center of the debate on this California wealth tax proposal — is that some superrich people move to avoid the tax. France became a cautionary tale, with critics often pointing to estimates that tens of thousands of millionaires left while its wealth tax was in place. However, how much of that exodus was caused by the wealth tax remains disputed.
Zucman acknowledges that the flight of rich people has been an issue with past wealth taxes, but he also argues that this problem has been overblown. He, for example, pointed to a recent working paper about Norway, which has had a wealth tax since 1892. It found that recent increases to this existing wealth tax, alongside other tax increases on the rich, drove at most 100 rich people to leave. But, it found, those departures didn't do much to dent the resulting gains in wealth-tax revenue. That said, Norway is a nation, not a state, and moving to another country is a bigger deal than, say, moving from California to Nevada.
To avoid the failures of past wealth taxes, Prop 40's designers have tried to plug potential leaks. Unlike France's old wealth tax, it would tax business holdings, including shares in companies that billionaires run. And by making it a one-time, retroactive tax tied to where billionaires lived on January 1, 2026, they hope to prevent billionaires from escaping the bill by simply moving away.
However, whether these provisions will actually work is at the heart of the debate.
Are Prop 40 supporters just California Dreamin'?
Rauh recently released a competing analysis with a provocative conclusion: instead of raising $100 billion, as Zucman and the measure's supporters claim, this wealth tax could ultimately cost the state billions.
First, Rauh argues, at least seven famous billionaires had already left California before the January 1, 2026, residency cutoff, putting their fortunes beyond the tax's reach. Those billionaires are Larry Page, Sergey Brin, Peter Thiel, Don Hankey, Steven Spielberg, Travis Kalanick, and David Sacks.
Those departures alone, Rauh says, reduced the potential revenue from this wealth tax by "around $30 billion."
Zucman, however, disputes that those fortunes are beyond California's reach. He says the legal experts he trusts believe it's unlikely that any of these billionaires successfully ended their California tax residency before the cutoff. Ending your residency, he argues, takes more than a last-minute move across state lines. Prop 40 was designed with this in mind. It was announced in late October 2025, giving billionaires only about two months to establish residency elsewhere before January 1, 2026. Talk about a New Year's Day hangover.
Take Google co-founder Sergey Brin. Sure, he's moved just across the border to the Nevada side of Lake Tahoe — and meanwhile spent more than a hundred million dollars trying to defeat Prop 40. But, Zucman says, he still frequently commutes to work in Silicon Valley. A quick change of address, he argues, doesn't necessarily mean you've left California behind for tax purposes. Rauh counters that Brin, backed by what we can only assume are the best accountants and lawyers, has likely succeeded in establishing Nevada residency. He stands by his assumption that Brin and the others are beyond the tax's reach.
Like much of the debate over how much this tax will ultimately raise, this dispute has as much to do with the law as it does economics.
Which leads us to the second reason Rauh believes this proposed wealth tax will raise much less money than its supporters hope: the courts. Billionaires, armed with the best lawyers money can buy, will mount a slew of constitutional challenges to this tax. And given this wealth tax's novelty — and the Supreme Court's conservative majority — there's a real risk that at least part of Prop 40 could be struck down.
For example, Prop 40's controversial retroactive provision. It would tax some billionaires based on where they used to live. Rauh argues that could violate the Constitution's due process protections, although the Supreme Court has upheld other retroactive taxes in the past. The tax also reaches beyond California's borders, targeting wealth held around the world, which could create legal issues. Rauh also raises legal concerns about how the tax would value privately held companies. He says that venture capital deals can put a price on a company that overstates what it's actually worth. Taxing an owner's share of that inflated value, he argues, could create constitutional problems.
The architects of Prop 40 designed the law with legal challenges in mind, and it has all sorts of fallback provisions meant to keep the tax working if the courts strike down any part of it. But how much revenue would survive those legal battles? This is another big disagreement between Rauh and Zucman.
Rauh and Jaros estimate a big range of possible outcomes. But their central estimate, which has generated plenty of headlines, cuts the remaining projected revenue in half to account for legal uncertainty. That is a strong assumption — not a certainty about how the courts will rule — and Zucman disputes it.
After accounting for billionaire departures and the anticipated legal challenges, Rauh and Jaros estimate the wealth tax would bring in only "around $30 billion."
But that's not the end of their gloomy estimate. Because Rauh and Jaros expect even more billionaires to flee the state if Prop 40 passes, taking their existing income tax payments with them.
Zucman questions that prediction: if moving won't necessarily get billionaires out of paying this retroactive, one-time tax, why would they leave? They're already on the hook, and this isn't an annual tax.
Rauh's answer: because they will rationally fear that this won't be the last wealth tax that California passes. The sense that California is becoming a hostile environment for the superrich could drive departures even if another wealth tax never materializes, he argues. After all, Zucman and many other supporters of Prop 40 see this one-time tax as only the beginning. Zucman advocates for an annual wealth tax in his book, and he told us, yeah, he doesn't really want this to be a one-time tax.
The way Rauh sees it, Prop 40 trades a stream of income-tax revenue in the future for a more immediate payout of wealth-tax revenue today. His calculation assumes those income tax losses continue indefinitely. All of which is how he and Jaros arrive at their shocking conclusion: "On net, the state loses $39 billion in expectation because of this tax," Rauh argues.
Zucman objects that their calculation factors in future income tax losses from billionaires fleeing feared wealth taxes — but none of the revenue those hypothetical wealth taxes would bring in.
"That's absurdly one-sided," Zucman says. "You can't just count the loss and not the gain."
Zucman also argues that the income tax losses from departing billionaires would be smaller than Rauh predicts. Using public financial disclosures, his team estimates that some of the richest billionaires — including Larry Page and Sergey Brin — pay relatively little in income taxes.
Rauh defends their calculation, arguing it follows standard procedures for scoring tax proposals. "It would be absurd to count revenue from not yet proposed taxes," he says. He also argues that the public financial disclosures Zucman and his team focus on give an incomplete picture of how much billionaires pay in income taxes.
The pull Of Silicon Valley
How much income tax revenue California could lose depends not just on what billionaires currently pay, but also on how many leave if Prop 40 passes. And the state has a powerful magnet that could keep them there: its thriving tech ecosystem.
For years, conservatives have been painting California as a progressive basket case, predicting that Democratic mismanagement would plunge its economy down the tubes and send rich people fleeing. Yet the state has become the epicenter of the AI boom. In 2025, Bay Area companies attracted three-quarters of all U.S. AI funding — and more than half the worldwide total — according to the Bay Area Council Economic Institute.
Economists refer to this industrial clustering as "agglomeration." Companies, workers, and investors in the same industry benefit from being near one another. It's
