Stanford Economists Warn California's Billionaire Tax Could Backfire

2026-10-20 economy

Sacramento, Tuesday, 20 October 2026.
A Stanford study warns Proposition 40 could erase $39 billion in long-term revenue as billionaire departures threaten California’s tax base ahead of November’s vote.

Stanford Economists Warn California’s Billionaire Tax Could Backfire

A new economic analysis from Stanford University economists cautions that California’s proposed wealth tax targeting billionaires could backfire, ultimately reducing total tax revenue for the state [1]. The study highlights that high-net-worth individuals are highly mobile, and the potential departure of top earners could erode the state’s existing income tax base, posing a significant risk to state budget stability and business investment sentiment [1]. Researchers estimate the measure may generate only $30 billion in revenue, which is significantly lower than the $100 billion projected by proponents, due to the migration of billionaires [1]. Furthermore, the state could lose $1 billion to $3.5 billion annually in income tax revenue, with long-term losses potentially exceeding the wealth tax proceeds by $39 billion in present value [1].

Economic Projections and Migration Risks

The proposed one-time 5% levy on billionaire wealth aims to collect funds from approximately 200 to 250 California billionaires [4][7]. However, seven billionaires, including Peter Thiel, Larry Page, and Sergey Brin, have already relocated from California, removing approximately $540 billion, or 30%, of the state’s total billionaire wealth from the potential tax base [1]. Benjamin Jaros and Joshua Rauh, economists who authored the Stanford working paper published by the National Bureau of Economic Research, noted that behavioral response prior to voting has eroded most of the projected tax base [1]. On October 19, 2026, the Service Employees International Union-United Healthcare Workers West (SEIU-UHW) disputed the Stanford research, maintaining that the tax is necessary to fund the state’s healthcare system [1]. Debru Carthan, Vice President of SEIU-UHW, stated the proposition’s sole purpose is to ensure that billionaires finally pay their fair share to prevent a collapse of California’s healthcare system [1].

Political Divisions and Governor’s Stance

Political leadership remains divided on the issue, with Governor Gavin Newsom formally endorsing Proposition 42 on October 16, 2026, a ballot measure designed to defeat Proposition 40 and prohibit future state wealth taxes [6]. Proposition 42 is funded by Google co-founder Sergey Brin and aims to ban new taxes on personal property, including 401K accounts, pensions, business holdings, financial assets, and art collections [6]. While Governor Newsom opposed Proposition 40 and attempted to keep the measure off the ballot, the California Democratic Party endorsed the billionaire wealth tax proposal in August 2026 [2]. Conversely, Silicon Valley billionaires have raised over $340 million to fight California’s proposed 5% billionaire tax and support competing measures [8]. Dave Regan, leader of the union behind Proposition 40, expressed confidence in the measure’s passage, noting there has never been a proposal like this anywhere in the world [1].

Public Sentiment and Voting Outlook

Proposition 40 is currently polling at 46% support among likely voters, with 43% opposition, according to a recent Citrin-Politico poll [1]. Sitting below a majority this late in a campaign is a red flag, according to ballot initiative veterans, and the static support reflects how difficult it has been for proponents to convert anti-billionaire sentiment into likely votes [3]. Californians will decide on Proposition 40 during the November 2026 election, a vote that could establish the state as the first jurisdiction to tax billionaire wealth [2]. If passed, 90% of the revenue is earmarked for healthcare to restore federal Medicaid cuts [4]. California voters are scheduled to vote on Proposition 40 on November 3, 2026 [4].

Sources

Wealth Tax California Economy