Economists argue California could raise more revenue by matching Texas property tax rates than by implementing a billionaire wealth tax

California's tax system, shaped by the 1978 Proposition 13 that caps property taxes at 1% of assessed value, has forced the state to rely heavily on income taxes, especially on capital gains. The top 1% of earners now contribute up to half of state revenue, making the budget vulnerable to market fluctuations. A proposed billionaire wealth tax, championed by supporters of Proposition 40, would levy a one-time 5% charge on assets exceeding $1 billion and is projected to generate about $100 billion.

Economists Owen Zidar of Princeton and Eric Zwick of the University of Chicago argue that a more substantial and durable revenue source lies in 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, emphasizing the need to broaden the tax base beyond a small group 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 choosing where to reside. 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 trigger extensive litigation, making the projected 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 reliable ways to raise revenue.