California’s proposed billionaire tax will cost the state an estimated $25 billion, Hoover study finds
Hoover Institution •
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“5% of two trillion is $100 billion”
Professor Saez, Stanford Institute for Economic Policy Research Economic Summit. March 2026
It (Prop 40) could raise nearly $100 billion in revenue for California.”
— Professors Saez and Zucman in The New York Times · May 2026(May 2026)
Stanford economists found the tax would only raise roughly $40 billion in the near term—but then cost the state far more than it raised, leading to an overall loss of $25 billion to California’s state budget due to lost revenue from capital flight and economic impacts.
Prop 40 will reduce state revenue over time by blowing a permanent hole in California’s tax base, which is uniquely dependent on its top 1% of earners.
According to Stanford University research the measure is estimated to collect less than half of the roughly $100 billion projected. The state’s own nonpartisan Legislative Analyst reports that Prop 40 will cause a likely ongoing decrease of app. $1 billion in state income tax revenue annually.
Stanford economists further estimated that through ongoing permanent losses to the tax base, Prop 40 will end up costing the state $25 billion in lost tax revenue.
Prop 40 has already removed more than half a trillion dollars–or nearly 30% of aggregate billionaire wealth–from the state’s tax base. Prop. 40 will not only fail to deliver the revenue promised, it will blow a permanent hole in California’s budget, safety net, and economy. This means: less money for schools, healthcare, roads, housing affordability efforts, public safety, wildfire resilience, and the many other essential services Californians depend on.
Despite the proponents’ claims of a fiscal emergency, consider that growth in the state’s economy has helped underwrite an unprecedented surge in the state budget since 2019—a growth of 79%, or more than $100 billion. By dismantling the state’s economic advantage and strong tax base, Prop 40 threatens to permanently gut the state’s budget for generations to come.
California is highly dependent on top earners for its tax base. The top 1% of California earners contribute 40-50% of the state’s entire income tax revenue base.
We factored in the loss of the income taxes that California’s departing billionaires would have paid, and our best estimate suggests that the wealth tax would leave California worse off by about $25 billion. The state would lose money in 71% of the scenarios we evaluated. Even in the net positive revenue scenarios, the state would not raise enough money to justify the tax’s many risks.”
— Stanford Professors Rauh and Jaros, The New York Times · June 2026(June 2026)
You’ve heard the claim that billionaires pay a lower tax rate than working-class Americans. It’s at the center of the case for California’s “Billionaire Tax” initiative, which would impose a 5% levy on the net worth of the ultra-wealthy. Almost every version of this claim traces back to economists Emmanuel Saez of UC Berkeley and Gabriel Zucman of the Paris School of Economics.....But the numbers don’t add up. For years the pair have relied on selective accounting methods and questionable assumptions to tilt the scales in favor of confiscatory wealth taxes.”
— Wall Street Journal op-ed, by Phillip Magness, a chair in political economy at the Independent Institute · June 2026(June 2026)
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Wall Street Journal •
Hoover Institution •
Estimate that Prop 40 authors cite on how much the wealth tax would raise.
Amount of aggregate billionaire wealth already removed from the state’s tax base, as Prop 40 looms.
Amount Stanford economists estimate Prop 40 will actually yield.
Amount economists estimate Prop 40 will cost the state in lost tax revenue and economic impacts over time.
Amount of the state’s total income tax base made up by the top 1% of California earners.