California billionaire tax could cost state revenue, researchers warn

California’s proposed billionaire wealth tax could cost the state more money than it raises over time by prompting wealthy residents to leave and reducing the income taxes they pay, according to a new working paper by Stanford researchers Benjamin Jaros and Joshua Rauh.

The paper, circulated by the National Bureau of Economic Research, estimates that the measure would collect about $30 billion, well below the $100 billion projected by supporters. But the researchers estimate that, over time, lost income tax payments could exceed the tax’s proceeds by nearly $39 billion.

The findings come as California voters prepare to decide Nov. 3 whether to approve Proposition 40, a one-time tax equal to 5% of billionaires’ net worth. The measure would apply to billionaires who were California residents on Jan. 1, 2026, with payments due in 2027. Taxpayers could spread their payments over five years at an additional cost.

Ninety percent of the proceeds would fund health care services, and the remainder would fund education, food assistance, and administration of the tax, according to the measure’s official ballot analysis.

According to the study, seven billionaires have already publicly moved out of California, reducing the wealth potentially subject to the tax by about $540 billion, or 30%. CBS News reported that those who have left include venture capitalist Peter Thiel and Google co-founders Larry Page and Sergey Brin. 

The researchers estimate that departures could cost California $1 billion to $3.5 billion annually in income taxes. Their projected $39 billion net loss assumes those losses continue permanently.

Jaros and Rauh also tested 100,000 scenarios using different estimates of tax collections and different ways of valuing future losses. In 85% of those scenarios, the state lost more revenue than it gained, they reported.

“These findings suggest that the Billionaire Tax Act will not fulfill the primary functions for which it was designed,” Jaros and Rauh wrote in the paper. “Although the Act was designed to raise revenue, behavioral response prior to voting has eroded most of the projected tax base.”

According to a Citrin-Politico poll reported Oct. 19, about 46% of likely voters favor Proposition 40, while 43% oppose it.