A one-time tax on billionaires’ wealth proposed in California could bring the state far less money than its supporters predict. Benjamin Jaros and Joshua Rauh, economists affiliated with Stanford University and the Hoover Institution, warn that over the long term the new rules could result in a loss of as much as $38.9 billion. Californians will decide whether to adopt the new tax in a referendum held during the Nov. 3 election.
The proposal calls for a one-time tax of 5% on the net worth of people with more than $1 billion who were California residents on Jan. 1, 2026.
Real estate and most retirement accounts are generally excluded from the tax base. Supporters of the initiative, including the labor union SEIU-United Healthcare Workers West, estimate that the new rules could generate about $100 billion in revenue. Of that amount, 90% would go to health care, with the remainder going to education and food assistance.
The tax would be assessed in 2027, with the option to spread payments over five years, but with additional interest.
Jaros and Rauh presented a much less optimistic forecast in a study published in October by the National Bureau of Economic Research (NBER). By their calculations, actual revenue from the tax would be about $30 billion, with a likely range of $28 billion to $36 billion. But that is only one side of the story, because the effect of billionaires moving their wealth out of the state may have been underestimated.
According to the researchers, the migration of billionaires could cost the state between $1 billion and $3.5 billion a year in income tax revenue. Assuming those losses continued indefinitely, their total value would exceed the one-time revenue from the wealth tax by $38.9 billion. In as many as 85% of 100,000 simulations, the financial result for the state was negative.
Jasper Boll, Emmanuel Saez and Gabriel Zucman, authors of a separate NBER study, reached different conclusions. In their view, the new tax could bring in about $100 billion, and any losses would be relatively small. The researchers question the assumption that the migration of the wealthiest residents would be permanent, given that the tax itself is a one-time levy.
Editor: JŁ
