Zucman and Rauh Clash Over Prop 40 Wealth Tax Revenue
Two prominent economists offer conflicting projections on the one-time 5% tax, with estimates ranging from $100 billion in gains to a $39 billion loss for the state.
By Nia Foster ·
Economists Gabriel Zucman and Joshua Rauh have published competing analyses of California Proposition 40, a proposal for the nation's first billionaire wealth tax. Zucman, a professor at UC Berkeley and the Paris School of Economics, co-authored a report estimating the measure would generate approximately $100 billion in state revenue. Rauh, a senior fellow at the Hoover Institution at Stanford University, co-authored a counter-analysis arguing the tax would instead cost California $39 billion.
The proposal mandates a one-time 5% tax on the net worth of individuals classified as billionaires. It applies retroactively to residents of the state as of January 1, 2026. Revenue from the measure is earmarked primarily for health care services for low-income Californians, specifically to offset federal reductions in Medicaid funding. The tax covers a wide array of assets, including stocks, real estate, and personal property, while exempting certain categories.
Zucman’s estimate is derived from a valuation of California billionaire wealth at $2.3 trillion as of mid-2026. He and co-authors Jasper Boll and Emmanuel Saez calculated that 5% of this total would yield roughly $115 billion. They then applied a 10% reduction to account for potential avoidance and evasion, resulting in the projected $100 billion figure. Zucman argues that the existing income tax system fails to capture the growth in billionaire wealth, which he states increased by 144% between 2023 and 2025.
Rauh challenges the assumption that billionaires will remain in the state. He contends that at least seven high-profile individuals, including Larry Page, Sergey Brin, and Peter Thiel, have already established residency in other states before the January 2026 cutoff. Rauh calculates that these departures remove approximately $30 billion from the taxable base. He also predicts that constitutional challenges will force the state to refund portions of the tax, further reducing net revenue.
The dispute centers on the definition of residency and the legal durability of the retroactive clause. Zucman argues that a change of address does not automatically constitute a change in tax residency, particularly given the short timeline between the proposal's announcement in late October 2025 and the January 2026 deadline. He cites a study of Norway's wealth tax, which found that recent rate increases drove at most 100 wealthy individuals to leave, a number he considers manageable. Rauh maintains that the legal risks are substantial and that the Supreme Court's conservative majority may strike down parts of the measure.
Proponents of the tax point to the concentration of wealth in publicly traded stocks, which are easier to value than private assets. Zucman notes that most California billionaire wealth is held in such liquid assets. Opponents cite the historical performance of wealth taxes in other countries, including France, where a similar measure was repealed in 2018 after critics argued it drove wealthy residents away. Rauh describes past wealth taxes as having had a dismal track record due to loopholes and mobility.
The political stakes are high, with billionaire opponents having contributed $333 million to a group seeking to defeat the proposition. The outcome of the vote will determine whether California proceeds with a tax structure that has no direct federal equivalent. Both economists agree that the measure represents a significant shift in how the state collects revenue from its wealthiest residents, but they disagree sharply on the financial impact.
