An October working paper by Hoover Institution research fellow Benjamin Jaros and Stanford finance professor Joshua Rauh projects that California’s proposed billionaire tax could reduce revenue despite a one-time windfall.
Jaros and Rauh forecast $28 billion to $36 billion in collections, a range that accounts for possible litigation outcomes. Their model gives the measure an estimated net present value of negative $38.9 billion if income-tax losses from departing billionaires continue indefinitely. That figure combines the projected tax receipts with the value of future losses; it is not an annual estimate.
The authors estimate that departures have already removed nearly 30% of the potential tax base. They based that estimate on wealth data, news reports about residential real-estate holdings and public announcements of moves.
Proposition 40, discussed in earlier coverage of the ballot measure, would generally impose a one-time 5% tax on covered billionaires’ net worth, with a phase-in near the $1 billion threshold. Legal residency on Jan. 1, 2026, determines who is covered; wealth would be valued on Dec. 31, 2026. Certain trusts would also be covered.
After administrative expenses, 90% of the revenue would go to public health care. The remaining 10% would fund education and food assistance.
The California Legislative Analyst’s Office (LAO) estimates the tax could collect tens of billions of dollars over several years, a range that includes Jaros and Rauh’s projection. It expects changes in billionaires’ behavior to reduce annual income-tax revenue by less than $1 billion. Those payments flow to the state’s general fund, which supports services including health care and education. The LAO’s annual estimate and the working paper’s net present value measure different outcomes over different periods.
A separate working paper by economists Jasper Boll, Emmanuel Saez and Gabriel Zucman projects about $100 billion in receipts and says departures would have a limited effect on income-tax collections. The authors estimate California billionaires pay about $3.2 billion a year in state income taxes. Saez disclosed that he provided unpaid advice on the measure’s design and revenue estimates. The competing projections turn chiefly on assumptions about departures and future income-tax payments.
Voters are scheduled to decide Proposition 40 on Nov. 3. Even if it passes, Proposition 41 or Proposition 42 could prevent it from taking effect if either receives more yes votes and a court finds that the measures conflict.
