The proposal to tax billionaires' wealth in California is quickly evolving into one of the biggest economic controversies in the United States. While proponents of the policy believe it could generate significant revenue for public services, opponents fear it could cause a loss of millionaires and wealthy people in California.
Study Suggests Departure Risks Are Overstated
A recent study by the National Bureau of Economic Research (NBER) suggests that even if all California billionaires left the state at once, it would take roughly 25 years for the resulting tax losses to equal the revenue projected from the proposed wealth tax.
What the Proposed Tax Would Do
The bill, known as the California Billionaire Tax Act, is proposed for the November 2026 ballot and would impose a one-time levy of 5% on the net wealth of California's billionaires above $1 billion. Researchers Jasper Boll, Emmanuel Saez, and Gabriel Zucman estimate it could raise about $100 billion over five years, with some of the money covering losses in healthcare funding arising from federal budget cuts.
California's billionaires have amassed more than $2 trillion in wealth, roughly half the state's gross domestic product. According to the study, California's billionaires are estimated to pay $3.2 billion in state income taxes each year, accounting for only 0.2 percent of their net wealth. The study argues that, based on those figures, California would still come out ahead financially for decades even under an extreme scenario in which all billionaires relocated elsewhere.
Billionaire Departures Remain Limited
The debate heated up following several highly publicized moves by billionaires who recently changed their residency status away from California. These include venture capitalist Peter Thiel, Google co-founders Larry Page and Sergey Brin, former Uber CEO Travis Kalanick, financier Don Hankey, and filmmaker Steven Spielberg.
Even with these cases, the researchers behind the paper claim that there is still no mass departure among the state's billionaires. According to their calculations, the estimated tax loss if only one-fourth of the billionaires left would not amount to the projected benefits within almost a hundred years. Jensen Huang, the CEO of Nvidia, has even come out publicly saying that he will be staying in California despite the proposed new tax law.
Critics Warn of Legal and Economic Risks
Not everyone is convinced that the plan will function as intended. The Tax Foundation, a Washington-based group focused on tax policy, believes the proposal will face some constitutional and legal challenges. In a recent analysis, the organization said the proposal's residency rules may be vulnerable in court because the tax would apply to individuals who were California residents on January 1, 2026, even though the ballot measure itself would be voted on months later.
The analysis also raised questions about the constitutionality of taxing wealth held outside the state or by people who no longer live in California. According to reports, these legal issues will encourage the wealthy to move out of California before the measure becomes effective.
Another problem critics cite with taxing unrealized wealth is that it may hinder investment, especially in Silicon Valley, where much of the billionaires' wealth comes from stockholdings rather than earned income. Reid Hoffman, co-founder of LinkedIn, has already called the plan "badly designed" and said that it may have adverse effects on innovations, as reported. Some economists additionally caution that long-term revenue estimates are difficult to predict because taxpayer behavior can change significantly in response to new taxes.
A Wider Debate About Taxing Wealth
The California proposal reflects a broader global debate over wealth taxation and inequality. Proponents contend that wealth among billionaires has soared in recent years amid advances in artificial intelligence, even as state governments have failed to provide adequate healthcare services. As explained in the report, the actual wealth of Californian billionaires has soared significantly in recent decades, far outpacing household incomes.
However, the problem with wealth taxation is that it may be difficult to enforce, especially when the ultra-rich move out of the state to avoid high wealth taxes. At present, the fate of this wealth tax will be determined by California voters next November in one of the most closely watched tax fights in the state.
