California voters decide Tuesday on Proposition 40, a one-time 5% tax on the net worth of the state's billionaires, with most of the money going to health care. Two leading economists who studied the measure have come to very different conclusions about what it would do, NPR's Planet Money reported Monday.
Supporters point to an analysis co-written by economist Gabriel Zucman, who splits his time between UC Berkeley and the Paris School of Economics and helped design national wealth tax proposals for Sens. Elizabeth Warren and Bernie Sanders. That analysis estimates the tax would raise about $100 billion. It takes 5% of an estimated $2.3 trillion in billionaire wealth and cuts the total by 10% to account for avoidance, evasion and people who moved away before the Jan. 1, 2026, residency date.
Zucman argues that if California shows it can tax the very wealthy, it could start a broader national and international movement. Supporters say the money is needed because federal Medicaid cuts threaten coverage for about 2 million Californians.
On the other side is Stanford economist Joshua Rauh, a senior fellow at the Hoover Institution, who co-wrote an analysis with Benjamin Jaros. They say the 10% adjustment is far too optimistic. Going person by person, they estimate departures already announced removed a large share of the tax base. After accounting for those moves and expected legal challenges, they estimate the tax would bring in only about $30 billion.
Rauh and Jaros go further, arguing that more billionaires would leave if the measure passes and take their state income tax payments with them. Counting those future losses, they estimate Prop 40 would leave California about $39 billion worse off overall.
A Tax Policy Network comparison said the gap comes mostly from method: one report uses a simple calculation based on Forbes wealth figures, while the other models residency, migration and lost income taxes. The real answer, it noted, depends on how the wealthy respond.
Sources: NPR Planet Money, KQED, The San Francisco Standard, Tax Policy Network.