California Voters Face Historic Choice as Economists Clash Over Proposed Billionaire Wealth Tax

Nearly five decades after California launched a national anti-tax movement with Proposition 13 in 1978, the state’s voters are considering a ballot measure that could shift fiscal policy in the opposite direction. Proposition 40, known as the California Billionaire Tax Act, aims to create the nation’s first wealth tax targeted specifically at the ultra-wealthy. The initiative proposes a one-time, 5% levy on the total net worth of billionaires, though certain assets would be exempted. To prevent residents from moving to avoid the fee, the policy applies retroactively to anyone classified as a California billionaire resident as of January 1, 2026. Revenues generated by the measure would primarily fund healthcare programs for low-income residents to make up for federal reductions to Medicaid. Political momentum for the campaign kicked off at The Wiltern in Los Angeles on February 18, 2026, where US Senator Bernie Sanders rallied supporters behind the initiative. Opponents have mounted an aggressive campaign to block the measure, pouring $333 million into a group organized to defeat Proposition 40 amid fears the policy could spread to other jurisdictions.

Conflicting Projections on Economic Impact

Economists remain sharply divided over how much revenue the levy would actually yield. Gabriel Zucman, an economist affiliated with UC Berkeley and the Paris School of Economics who authored the book We Need To Tax Billionaires, helped design an analysis projecting substantial gains. Zucman—who previously advised Senators Bernie Sanders and Elizabeth Warren on national wealth tax policies—estimates the measure could net about $100 billion. Zucman’s research team found that total California billionaire wealth hit $2.3 trillion by mid-2026, driven by a 144% increase between 2023 and 2025 due in part to the artificial intelligence boom. In their report, the authors noted: “California billionaires’ wealth has reached $2.3 trillion by mid-2026, as large as all the annual income reported on income tax returns of all Californians.” They calculated the $100 billion net figure by taking 5% of the overall billionaire asset pool and incorporating a 10% reduction to account for potential tax avoidance, evasion, or relocation before the residency deadline. However, Stanford economist and Hoover Institution senior fellow Joshua Rauh presents a starkly different outlook. Co-authoring a study with Benjamin Jaros, Rauh argues that the tax will provoke a major exit of high-net-worth individuals, destabilizing existing state income tax receipts. “It wouldn’t raise $100 billion for the state,” Rauh said, warning that the move would ultimately harm California’s broader economy. “We calculate that Proposition 40 would cost the state of California $39 billion.”

Rising Wealth Disparity at the Top

Proponents counter that structural flaws in existing tax rules allow the superrich to pay comparatively little in standard income taxes while personal fortunes expand. Zucman argues that wealthy individuals often structure their personal finances to limit taxable income, rendering traditional income tax rates largely ineffective for controlling concentrated economic power. According to findings by Zucman, Boll, and Saez, the top 0.001% of California households saw their inflation-adjusted fortunes multiply by 25 between 1982 and 2026. Over that same timeframe, the average family income across the state only doubled. Whether California voters decide to pass the ambitious experiment or reject it in November will likely set the course for wealth tax debates across the country.