Billionaire Tax Backfires? $39B Hole Looms

A new study says California’s plan to tax billionaires could actually leave the state $39 billion poorer, not richer.

Story Snapshot

Proposition 40 would charge a one-time 5% tax on the net worth of billionaires living in California on January 1, 2026.
Stanford-linked economists say the tax could cost the state $39 billion once lost future income taxes are counted.
At least seven billionaires have already left the state, taking roughly $540 billion out of the potential tax base.
Supporters, including Rep. Ro Khanna, say the measure could raise about $100 billion for health care and social programs.

What Proposition 40 Would Actually Do

California voters will decide Proposition 40 on November 3. The measure would charge billionaires and certain trusts a one-time tax equal to 5% of their net worth. Payment would be due in 2027, with an option to spread it over five years at a higher total cost. Real estate, pensions, and retirement accounts would generally be left out of the calculation.

The idea comes from a ballot initiative backed by Rep. Ro Khanna, who argues roughly 200 billionaires who call California home should help pay for health care and other state programs. Supporters have projected the tax could bring in close to $100 billion. Gov. Gavin Newsom, however, opposes it, warning it could push wealthy residents and their tax dollars out of the state entirely.

Economists Warn The Math Doesn’t Work

Economists Benjamin Jaros and Joshua Rauh, in a working paper tied to Stanford and the Hoover Institution, estimate the tax would actually collect closer to $30 billion, with a likely range of $28 billion to $36 billion. That’s less than a third of what supporters claim. The gap matters because the entire pitch for Proposition 40 rests on big, dependable revenue for health programs.

The bigger problem, according to the researchers, is what happens after the one-time payment. California’s billionaires currently pay between $3.3 billion and $5.8 billion a year in state income taxes. If wealthy residents leave to avoid the wealth tax, that yearly income stream disappears for good. The researchers calculate the lost future income taxes outweigh the one-time wealth tax collection by about $38.9 billion in today’s dollars.

Running 100,000 different simulations with varying assumptions, the economists found that 85% of plausible outcomes actually produce a net loss for the state’s budget, not a gain. That’s not a worst-case scenario buried in the fine print. It’s the most likely result under their model, which complicates the argument that the tax is a reliable way to fund new spending.

Billionaires Are Already Leaving

This isn’t just theoretical. CBS News reported that seven billionaires have already publicly left California, taking about $540 billion, or 30% of the state’s total billionaire wealth, out of reach before the tax could apply. The economists say confirmed departures have already wiped out nearly 30% of the proposed tax base, shrinking the pool of money the measure was designed to tap.

Billionaire investor Mark Cuban has been one of the loudest critics, calling the plan “insane” in a public exchange with Khanna. Cuban argues many founders are wealthy only on paper, holding stock instead of cash, and would struggle to pay a tax without selling shares or borrowing against them. He said passing the tax would mean “only idiot startup founders stay” in California.

Mark Cuban is worth $6.8 billion, per Forbes. He says a billionaire might hold 5% of their wealth in cash, "if you're lucky."

On November 3, California votes on Prop 40: a one-time tax of up to 5% on residents worth $1 billion or more.

His example: three founders each own 10%… pic.twitter.com/jKUZaANWqC

— Alex Carter (@AlexCarterMax) October 25, 2026

Not everyone agrees the migration threat is as severe as critics suggest. Tax law expert Darien Shanske has noted that under long-standing California residency rules, many publicized moves may not actually erase someone’s tax exposure if they were residents on the key date. That legal wrinkle means some of the attention-grabbing departure numbers could matter less than headlines suggest.

A Familiar Fight Over Who Pays

This debate echoes a struggle playing out across the country and overseas: governments want money from concentrated wealth, but the wealthy often have the means to move. European nations have largely abandoned similar wealth taxes over the decades for these same reasons. California’s experiment will test whether a modern, one-time version can avoid those same pitfalls, or whether it simply drives money and jobs elsewhere.

For voters frustrated with government spending and fairness fights alike, Proposition 40 captures a core tension. Backers say billionaires should contribute more to struggling health programs. Critics, including the state’s own governor, warn the plan could backfire and leave ordinary taxpayers covering the gap. Both sides agree on one thing: the stakes for California’s budget are enormous either way.