California voters to decide on Proposition 40 billionaire wealth tax amid concerns over revenue and migration
Proposition 40 proposes a one-time 5% tax on assets over $1 billion, sparking debate over its potential $100 billion revenue versus possible loss of billionaire residents and income tax base.
California voters will decide on Proposition 40, a measure that would levy a one-time 5% tax on assets exceeding $1 billion held by individuals and trusts. The tax, payable over five years, would apply to businesses, securities, art, collectibles and intellectual property, while excluding real property, pensions and certain retirement accounts. Revenue is earmarked for state health-care programs, public education and food assistance.
The proposal has prompted several high-profile billionaires, including Google co-founders Larry Page and Sergey Brin, Oracle founder Larry Ellison and PayPal co-founder Peter Thiel, to relocate or move businesses out of California. Max Levchin, co-founder of Affirm Holdings, told Bloomberg he would "probably" leave the state if the tax passes, adding that he loves California but disagrees with the notion of widespread asset seizure.
Supporters estimate the tax could generate about $100 billion over the five-year collection period, citing a working paper by UC Berkeley economists Gabriel Zucman and Emmanuel Saez that projects minimal impact on income-tax revenue. They argue that many billionaires pay little income tax because most of their wealth comes from investments, so the wealth tax would add significant funds even after accounting for some departures.
Opposing analyses from Hoover Institution economists Joshua Rauh and Benjamin Jaros suggest that recent departures have already reduced the potential tax base by roughly 30%, projecting collections of $28 billion to $36 billion after assuming a 10% avoidance rate. Their net-present-value analysis indicates that lost income-tax revenue from departing billionaires could outweigh the one-time wealth-tax receipts, resulting in a negative fiscal impact in the majority of simulated scenarios.
The Hoover researchers also note that, although the measure is presented as a one-time tax, the state legislature could amend it with a two-thirds vote, potentially allowing future wealth-tax legislation without direct voter approval.