Economic Impact

Despite claims, experts say Prop 40 would have disastrous impact on state’s economy and tax base

September 26, 2026 · 3 min read

The co-authors of Prop 40 claim California’s economy can “take the hit.” Business leaders, economists, and Governor Newsom say otherwise, citing the measure’s disastrous impacts on the state’s economy, jobs, and tax base.

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"If some of them think it's too much to ask me to pay that extra billionaire tax and they leave, then, so be it"

Professor Saez, Stanford Institute for Economic Policy Research Economic Summit. March 2026

If some of them think it's too much to ask me to pay that extra billionaire tax and they leave, then, so be it.”

— Professor Saez, SIEPR Economic Summit Stanford University · March 2026(March 2026)

The remote possibility of a small future tax—imposed only after great success—is very unlikely to dissuade entrepreneurs who will understand that California provides a greater opportunity than other places to earn a billion-dollar fortune.”

— Co-Authors Academic Report on the Billionaire's Tax (Galle, Gamage, Saez and Shanske). · Feb 2026(Feb 2026)

The reality is that Prop 40 has already eroded the state’s tax base by more than half a trillion dollars, will not collect the revenue promised, and will jeopardize the state’s innovation and entrepreneurship edge, causing widespread impacts to the state’s jobs, economy, and budget.

As the fourth largest economy on earth, California is uniquely propelled by the innovation and knowledge-based sectors that drive its strong jobs and economic climate. And growth in California’s economy has in large part helped underwrite much of the state budget’s recent staggering expansion—a surge of 79 percent or more than $100 billion–since 2019 alone, according to the state’s non-partisan Legislative Analyst’s office. Further, California is uniquely dependent on top earners for its tax base. Today, the top 1% of earners contribute 40-50% of the state’s total income tax revenue.

Stanford Economists:
“When corporate founders leave, hiring decisions tend to follow. Silicon Valley and other drivers of the state’s prosperity are not guaranteed to remain the unique and vibrant economic powerhouses they have been. The share of Californians employed at the state’s anchor companies has fallen steadily since 2015. Across the sectors those companies dominate, such as the booming technology industry, as many as a quarter of a million jobs have gone to other states. Imposing a wealth tax would accelerate this trend.”
Andersen Institute, Columbia, and UC Berkeley research:
“The new tax would have adverse consequences on investment and growth, would encourage the ongoing population decline, and would lead to likely losses of “agglomeration economies” associated with locations that employ many high-tech laborers.”
It will depress employment in sectors key to California’s competitiveness:
Research shows that this tax would lower the level of employment in California’s high-tech sector—with spillover effects depressing employment in other sectors as well.
Mark Cuban, on Prop 40 (as reported by the Los Angeles Times):
If the tax passes, Cuban noted: “only idiot startup founders stay in Cali” and “you can bet if I’m investing in a multi billion dollar startup, I’m asking them to move from California first.”
It jeopardizes the state’s innovation edge:
Andersen Institute for Finance and Economics research finds that other states and innovation clusters have already gained ground on California in recent years and further relocation or expansion in other markets driven by this tax could erode the state’s competitiveness and innovation economy.

The evidence is in. The impacts are very real—not just substantive economic impacts in terms of the revenue, but start-ups, the indirect impacts of … people questioning long term-commitments, medium-term,” Newsom said. “That’s not what we need right now, at a time of so much uncertainty. Quite the contrary.”

— Governor Newsom, Politico · June 2026(June 2026)