Economists say California could squeeze far more from the ultra-wealthy by matching Texas property tax rates than by flirting with a billionaire wealth tax
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Researchers argue that California’s ultra-lower residential property tax rate keeps the state dependent on volatile income from the wealthy, and that adopting Texas-level property taxes could raise far more stable revenue than a one-time billionaire levy.
California's tax system, warped by the 1978 Proposition 13 that caps property taxes at 1% of assessed value, has long tilted the burden away from wealth and onto income, especially capital gains. The top 1% of earners now contribute up to half of state revenue, leaving the budget exposed to market swings and the whims of the richest residents. A proposed billionaire wealth tax, backed by supporters of Proposition 40, would impose a one-time 5% charge on assets above $1 billion and is projected to bring in about $100 billion.
Economists Owen Zidar of Princeton and Eric Zwick of the University of Chicago argue that a far sturdier and more equitable revenue source is property taxes. In a recent New York Times op-ed they noted that California homeowners currently pay an average property tax rate of 0.8%, generating roughly $100 billion in fiscal 2025, while Texas homeowners pay about 2%. They estimate that if California adopted Texas's rate, residential property-tax revenue would more than double and home prices could fall by around 13%.
"It is simply not possible to fund the state’s needs by leaning on a few hundred people, as politically appealing as that may be," Zidar and Zwick wrote, underscoring the need to broaden the tax base beyond a tiny class of billionaires.
Former White House economic adviser Laura Tyson and former California Governor Gavin Newsom adviser Lenny Mendonca cautioned that billionaires are highly responsive to estate and wealth taxes when deciding where to live. They pointed out that six billionaires who would have owed about one-quarter of the expected revenue from Proposition 40 have already left the state. The economists also warned that the untested wealth-tax mechanism could spark extensive litigation, making the promised funding uncertain.
Tyson and Mendonca suggested alternative approaches, including higher corporate tax rates, taxes on realized and unrealized capital gains, closing loopholes such as carried interest, and increasing inheritance taxes, as more dependable ways to raise revenue.