A week before Californians vote on Proposition 40, the economists who drafted a one-time 5 percent tax on the state’s billionaires say it would raise about $100 billion, and two Stanford economists say it would leave California about $39 billion poorer.
Most of the distance between those figures traces to three things the measure’s text cannot settle by itself: whether the billionaires who announced moves before the Jan. 1 residency date really left, what founders’ private and super-voting shares are worth, and whether courts will let a tax enacted in November reach back to a snapshot taken in January. The state’s nonpartisan Legislative Analyst’s Office declined to pick a number. The state “probably would collect tens of billions of dollars,” its ballot analysis says.
On the record so far, neither end of the range holds up cleanly. The authors’ $100 billion still counts about $29 billion owed by people who say they left before New Year’s Day, and it assumes the January date survives in court. The Hoover Institution estimate rests on the opposite bet, that anyone who leaves over a one-time tax never comes back, and the best recent evidence from Norway does not show founders leaving in anything like those numbers.
Brian Galle, a Berkeley professor who helped write the measure, recently found an opposition flyer in his mailbox saying the tax could fall on anyone, even on retirement savings, Al Jazeera reported. He had written neither provision. Opponents have raised more than $300 million and supporters about $32 million, according to the same report, and Mr. Galle said the measure “is meant to make democracy more equal, but the billionaires are using their money to avoid that.”
About 96 percent of the opposition money has come through one group, Building a Better California, led by $102 million from Sergey Brin, the Google co-founder, according to an LA Public Press analysis of filings through Oct. 20. The group gave $118.5 million to fight Proposition 40 directly and $186 million to back Propositions 41 and 42, two rival measures that could cancel it. David McCuan, a Sonoma State political scientist, told Al Jazeera the spending makes this the most expensive ballot measure ever. By Ballotpedia’s count, the record still belongs to the 2022 sports betting measures, at $463.3 million, though the totals here are still climbing.
What the measure does
Proposition 40, formally the 2026 Billionaire Tax Act, taxes 5 percent of worldwide net worth for anyone who was a California resident worth at least $1 billion on Jan. 1, 2026. The wealth is measured almost a year later, on Dec. 31, with a reduced rate between $1 billion and $1.1 billion. Real estate, pensions and retirement accounts would generally be excluded, according to the analyst’s office, and changing the tax would take a two-thirds vote of the Legislature, which is why claims that it could be extended to everyone else do not match the text.
The bill would come due April 15, 2027. Taxpayers could stretch it over five annual payments with a nondeductible charge of 7.5 percent a year on the unpaid balance, which Jared Walczak of the Tax Foundation calculated lifts the effective rate to 5.75 percent. Ninety percent of the money would go to health care, mainly Medi-Cal, and 10 percent to education and food assistance.
SEIU-United Healthcare Workers West filed the measure as federal Medicaid cuts approached. LAist’s voter guide puts California’s loss at about $30 billion a year in Medi-Cal money. Gov. Gavin Newsom, a Democrat, calls the measure “poorly written” and has warned that billionaires could leave.
Three estimates
The proponents’ figure comes from an expert report revised in July by Mr. Galle, David Gamage of the University of Missouri, Darien Shanske of the University of California, Davis, and Emmanuel Saez, a Berkeley economist. The first three drafted the initiative. Their scoring takes the Forbes real-time billionaire list, applies 5 percent and subtracts 10 percent for every kind of avoidance and evasion. That gives close to $100 billion, drawn from billionaires the authors say hold $2.3 trillion.
Benjamin Jaros and Joshua Rauh, Stanford economists at the Hoover Institution, start from a smaller base, $1,894.8 billion, in a working paper the National Bureau of Economic Research posted this month. They remove $539.9 billion belonging to seven billionaires who publicly left before the residency date, which cuts the potential take to $72.06 billion, or $28.85 billion less. Then comes a litigation discount: Mr. Jaros told The San Francisco Standard that the model assumes the state collects about half of what remains, a convention he likened to accounting for uncertain tax positions. The paper lands at about $30 billion, in a range of $28 billion to $36 billion.
The step that turns the number negative is income tax. California’s billionaires pay an estimated $3.3 billion to $5.8 billion a year in state income tax, the paper says, and in its model the share paid by those who leave is gone for good. Netting that against the one-time haul gives a mean net present value of about negative $39 billion, with 85 percent of 100,000 simulated outcomes below zero. An earlier Hoover version, presented in March, scored it at negative $25 billion. The bureau summarized the new result on X.
California’s Billionaire Tax Act would collect roughly $30 billion. Accounting for lost income taxes from departures, the mean Net Present Value is negative $39 billion, from Benjamin Jaros and Joshua Rauh
The analyst’s office, whose estimate appears in the official voter guide, did not net anything out. It projects “tens of billions” over several years, a possible ongoing loss of less than $1 billion a year in income tax if billionaires leave, and administrative costs that “could be tens of millions of dollars per year for several years.” Mr. Jaros called its analysis “sufficiently informative and yet vague at the same time.”
The proponents’ rejoinder is about that income stream. A May paper from the bureau, co-written by Mr. Saez and Gabriel Zucman of the Paris School of Economics, found that California billionaires paid $4.1 billion in state income tax in the latest year, about 0.2 percent of their net worth, and that more than 80 percent of their wealth is unrealized gains the income tax never reaches, as Fortune reported. If every billionaire left, the authors calculated, it would take 25 years of lost income tax to cancel $100 billion in wealth tax. If a quarter left, a century.
Mr. Saez and Mr. Rauh argued it out in March at the Stanford Institute for Economic Policy Research’s summit, where Mr. Rauh warned the tax could “liquidate Silicon Valley” and Mr. Saez said that if billionaires “think it too much to pay that extra billionaire tax and they leave, so be it,” according to the institute’s recap.
Who left, and when
Larry Page, Google’s other co-founder, Mr. Brin and the investor Peter Thiel moved to Miami before New Year’s Day. Don Hankey, the auto lender, went to Las Vegas and Travis Kalanick, Uber’s former chief executive, to Texas, and Steven Spielberg became a New York resident on Jan. 1, though his representative said the move had long been planned to be closer to family. Fortune tallied the six at about $27 billion in forgone tax, $25 billion of it from Mr. Page and Mr. Brin. One relocation adviser, David Lesperance, personally helped four billionaires get out before the cutoff, Bloomberg reported in January.
The counts differ at the margins. The Hoover economists add David Sacks, the venture capitalist and former Trump administration technology adviser, for seven, while other reports place his move after the deadline. The bigger dispute is whether the moves survive an audit. In a March response to Hoover, the measure’s authors argued that announcing a move is not proof of one, and that the Franchise Tax Board would decide who was a resident on Jan. 1. Those exits had already narrowed the base before the measure reached the ballot.
Mr. Zucman, who has campaigned for the measure, told The Standard that for everyone still in the state on Jan. 1 the date closes the door.
There is no incentive to move to another state. One cannot avoid the tax by moving.
For the tax itself, that holds: a billionaire who was a resident on Jan. 1 and leaves now still owes it, unless a court moves the date. What leaving changes is the income tax California collects afterward, and that is where the two models part. Hoover treats every exit as permanent. Mr. Saez has said billionaires would stay away only if the wealth tax became permanent too.
The Meta arrangement
On Oct. 19, Meta’s board approved a new class of nonvoting stock, and the next day Mark Zuckerberg signed what the company calls a Founder Alignment Agreement, according to Meta’s filing with the Securities and Exchange Commission. Starting Jan. 19, 2027, every shareholder receives one Class C share for each share held, and Mr. Zuckerberg may sell 20 percent of his new Class C shares for any reason without giving up votes. In exchange he committed for eight years to remain a resident “of California or any other jurisdiction in which the Company maintains its corporate headquarters,” absent “material unforeseen circumstances rendering it prudent or advisable for him to reside elsewhere.”
Mr. Zuckerberg had told the board he was weighing a move out of California because of the measure, CBS News reported. Forbes puts his net worth above $220 billion, which implies a tax of more than $11 billion. He controls about 60.6 percent of Meta’s votes, and selling super-voting stock to pay the tax could have cut that to 53 percent, TheStreet reported from the filing. Mr. Zucman, who counted 25 mentions of Proposition 40 in Meta’s documents, posted that the agreement showed Mr. Zuckerberg getting ready to pay.
This is huge.
A just-released SEC filing makes an extraordinary revelation: Mark Zuckerberg is getting ready to pay California’s 5% billionaire wealth tax and has signed an agreement to remain in California for 8 years.
We are witnessing a global turning point unfold before our…
Meta said Mr. Zuckerberg receives no added compensation and argued that he would in effect be paying to serve as chief executive while living in California, The Associated Press reported. On Hacker News, a reader argued that the real worry was the share price.
He owns enough shares that there would be a significant change in the supply/demand ratio when California forces him to sell to meet his tax burden. That would tank the stock price because way too much supply when he tries to sell.
The measure does not force a sale on one date. Payments can run over five years at the 7.5 percent deferral charge, so an $11 billion bill could be spread across 2027 to 2031. Meta framed its own concern around leadership and control, not price. The deal leaves the tax bill where it was and spares his voting majority, and it binds him to wherever Meta keeps its headquarters, not to California by name.
The valuation fight
For public stock, value is the market price on Dec. 31. For everything else, the measure presumes a formula: book value plus 7.5 times average annual profits over three years, times the owner’s stake, with losses counted as zero and no discounts for minority stakes or lack of marketability. Value cannot fall below the price of any funding round or equity sale in the prior two years unless the taxpayer shows by clear and convincing evidence that it overstates the worth, according to Mr. Walczak’s analysis.
The most disputed line concerns control. For shares that carry votes, the owner’s stake is presumed to be no less than his share of the votes. Mr. Walczak’s example is Tony Xu, DoorDash’s founder, who owns 2.6 percent of the company and controls 57.6 percent of the vote; read literally, the presumption yields a $2.62 billion tax on a stake worth $2.41 billion. Mr. Walczak wrote that Mr. Xu would very likely win that argument, and Mr. Xu is among the donors to the opposition, Al Jazeera reported.
The Yes on 40 campaign says no one will be taxed on more than the market value of their holdings and that the methods mirror federal estate tax practice. Taxpayers can replace the formula with a certified appraisal. Jon Feldhammer, a San Francisco tax lawyer, told CalMatters he expects clients to file long suits over valuations, because “these are people who have oftentimes plenty of wealth to spend on legal fees.” He objected that the measure leans on a startup’s latest funding round.
How do you value a company that is not on the public market? It doesn’t even have a product yet.
Chris Parker, a former Franchise Tax Board lawyer now at Baker Tilly, told CalMatters the board has “no way of knowing anyone’s net wealth.” Appraisers who certify values face penalties of up to 4 percent of any understatement, with no cap. And the whole base moves with the market until Dec. 31, since “much of the wealth is based on stock prices, which are always changing,” as the analyst’s office put it.
The case in court
The measure calls itself an excise on “sustaining excessive accumulations of wealth.” Mr. Walczak argues that it is in substance a property tax, which the state constitution caps at 0.4 percent for intangibles and requires to be uniform, and that the constitutional amendment the drafters folded in to clear that bar could be struck as a revision. He also cites the residency date, more than 10 months before the vote, and apportionment: a resident who leaves midyear owes on all his wealth unless he rebuts the presumption, and even then faces a 25 percent floor.
He opened his legal analysis with a prediction.
If California adopts a wealth tax, the only undisputed winners will be the lawyers.
The drafters answer that the tax reaches fortunes held during 2026 and measured at year’s end, so it is not retroactive. In a legal memo, Mr. Galle, Mr. Gamage and Mr. Shanske dismiss critics’ reliance on a 1928 gift tax case and point to United States v. Carlton, the 1994 decision upholding a retroactive estate tax change, writing that “the Supreme Court has not found any tax provision unconstitutionally retroactive since its 1928 decision.” The National Taxpayers Union Foundation counters that Carlton involved a clarifying amendment with a much shorter look-back.
Mr. Feldhammer tells clients there is a “reasonable argument that the law may be unconstitutionally retroactive — but to take advantage of that, you’re going to have to leave.” Mr. Rauh, Mr. Jaros and Aharon J. Friedman argued in a separate Hoover paper this month that the tax exceeds California’s taxing power under several provisions of the U.S. Constitution. Their revenue paper puts the spread at zero, if courts strike everything, to $72 billion if the state wins every case.
The record elsewhere
Twelve countries in the Organization for Economic Cooperation and Development taxed individual net wealth in 1990, and four did by 2017, according to an OECD report that cited efficiency and administrative concerns. France replaced its wealth tax in 2018 with a levy on real estate alone. A government evaluation committee found the new tax raised €1.3 billion in 2018, against €4.2 billion from the old one in 2017, and that departures fell and returns rose, though only a few hundred people were involved.
Norway raised its top wealth tax rate to 1.1 percent from 0.85 percent in 2022, and at least 30 wealthy Norwegians moved to Switzerland that year, The Financial Times reported. A working paper by Marius Ring of the University of Texas at Austin, released by the bureau in October, found the reforms drove out at most about 100 people, almost all in the top 0.1 percent, and that wealth tax revenue still rose 71.5 percent from 2021 to 2024, against 75 percent with no emigration. He found no outflow of startup founders or inventors. Morten Støstad, an economist, flagged the paper on X.
An extremely relevant paper, given the renewed concern that wealth taxes lead to massive out-migration:
The Norwegian wealth tax “exodus”, discussed in global media, never happened. At most 100 individuals left. Tax revenue increased by +71.5%. No changes in business activity.
Massachusetts’ 4 percent surtax on income above $1 million, approved by voters in 2022, brought in more than $3.1 billion in the first 10 months of its current fiscal year, against an original forecast of about $2 billion a year, The Salem News reported in May. Critics there say wealthy residents are leaving for New Hampshire and Florida. It is an annual tax on income, so it tests different behavior.
California has tried before. Assembly Bill 2088, introduced in 2020 by Rob Bonta, then an assemblyman, would have charged 0.4 percent a year on worldwide wealth above $30 million and kept taxing people for up to 10 years after they left, a design the National Taxpayers Union Foundation called unconstitutional. It died when the session ended Aug. 31, 2020. Later versions also died, the last in committee on Feb. 1, 2024. Proposition 40 trades the annual levy and the exit tax for one payment and a fixed date.
Weighing the objections
Mr. Rauh’s sharpest objection is about trust, not this year’s departures. He posted his debate remarks on his Substack in April.
This tax is billed as one-time. But why would anybody believe that it’s a one-time tax?
California’s own record gives the question weight. Proposition 30 in 2012 raised income tax rates on high earners for seven years. Voters extended them through 2030 with Proposition 55 in 2016, which the analyst’s office projected would bring in $4 billion to $9 billion a year, and Proposition 3 on next week’s ballot would make them permanent. Mr. Jaros told The Standard the measure makes it “more plausible that the state of California could tax net assets in the future.”
That risk would fall hardest on fortunes not yet made. On Hacker News, a reader put it bluntly in a thread about the tax.
When you tell people that they can save billions by leaving they probably will
The Norwegian evidence cuts against a founder exodus, at least over three years, but Norway’s tax is annual and national. Mr. Jaros acknowledged to The Standard that no study measures whether leaving a state is easier than leaving a country, which leaves both camps extrapolating. A one-time levy with a residency date already past gives no billionaire a tax reason to leave now. The risk Mr. Rauh describes depends on whether voters and lawmakers come back for more.
The vote and after
Forty-five percent of likely voters favored Proposition 40, 42 percent opposed it and 13 percent were undecided in a Berkeley Institute of Governmental Studies poll of 4,512 likely voters taken Sept. 15 to 20, down from 52 percent support in March. The Public Policy Institute of California found 52 percent yes and 46 percent no in early September, along with 51 percent for Proposition 41 and 54 percent for Proposition 42.
Those two matter because when conflicting measures both pass, the one with more yes votes prevails. Proposition 42 would bar new taxes on personal property and limit retroactive taxes, and Proposition 41 would nullify new taxes passed this year that exempt their revenue from the state spending limit, as Proposition 40 does, CalMatters reported.
The vote is Nov. 3. If Proposition 40 passes and prevails, any challenge must be filed within 60 days in Sacramento County Superior Court, which the measure urges to rule by April 2027, and the first payment is due April 15, 2027. The measure asks the California Supreme Court to decide any appeal by Nov. 1, 2027.