Rauh and Zucman Clash Over Prop 40's Billionaire Tax Outcome

California voters will decide on November 2, 2026, whether to implement the nation's first billionaire wealth tax.

Election Day is approaching, and two prominent economists have published conflicting analyses on the financial impact of Proposition 40. The proposal imposes a one-time 5% tax on the net worth of individuals who were California residents on January 1, 2026. The revenue is earmarked primarily for low-income healthcare to offset federal Medicaid cuts. The measure applies retroactively to assets held as of that date, including stocks, real estate, and other personal property.

Gabriel Zucman, an economist at UC Berkeley and the Paris School of Economics, co-authored an analysis estimating the tax could generate approximately $100 billion. He states that California billionaires' wealth reached $2.3 trillion by mid-2026, a 144% increase from 2023 to 2025. Zucman argues that existing income taxes are ineffective for the super-wealthy because they can structure finances to minimize taxable income. He believes this tax will reduce inequality and raise necessary funds. His team reduced the projected revenue by 10% to account for potential avoidance or residency changes.

Joshua Rauh, a Stanford economist and Hoover Institution senior fellow, co-authored a competing analysis with Benjamin Jaros. Rauh estimates the tax could cost the state $39 billion rather than raising revenue. He argues that the tax will trigger an exodus of billionaires, damaging the state economy and eroding existing income tax revenue. Rauh contends that Zucman’s 10% reduction for avoidance is too optimistic.

Rauh points to the departure of seven high-profile billionaires before the January 1, 2026 cutoff: Larry Page, Sergey Brin, Peter Thiel, Don Hankey, Steven Spielberg, Travis Kalanick, and David Sacks. He claims these moves reduced potential revenue by around $30 billion. Zucman disputes this, arguing that ending residency requires more than a change of address. He notes that Prop 40 was announced in late October 2025, giving billionaires only two months to move. Zucman cites legal experts who believe it is unlikely these individuals successfully ended their residency in time. He specifically mentions Sergey Brin, who moved to Nevada but continues to commute to Silicon Valley.

Past wealth taxes have struggled to generate revenue. Zucman acknowledges in his book that previous attempts have been failures, often due to loopholes that allowed asset sheltering. France removed its wealth tax in 2018 after critics cited an exodus of millionaires. Zucman points to a study of Norway, which has had a wealth tax since 1892, noting that recent increases drove at most 100 wealthy residents to leave without significantly denting revenue. Prop 40 designers attempted to close loopholes by taxing business holdings and using a retroactive residency date to prevent late moves.

Legal challenges are also central to the debate. Rauh argues that billionaires will mount constitutional challenges, particularly regarding the retroactive nature of the tax and its reach beyond California borders. He suggests the Supreme Court's conservative majority may strike down parts of the measure. Zucman and Rauh represent a classic academic rivalry, but the stakes involve a historic experiment in taxing the superrich. According to a recent New York Times report, the super-rich have contributed $333 million to a group opposing the proposition, fearing a national movement. The final outcome will determine if California serves as a model for global wealth taxation or a cautionary tale.