California’s Proposed Billionaire Tax

California Ballot Initiative No. 25-0024, titled the “2026 Billionaire Tax Act,” is a unique ballot measure with a clear aim: “to protect access to high-quality, equitable health care, and to support funding for kindergarten through grade fourteen public education and food assistance programs, by raising revenue from a one-time tax on billionaire wealth.” The one-time tax is a 5% wealth tax levied on a billionaire’s net worth, and it will apply to any billionaire who claimed California residency as of January 1, 2026.

Following failed negotiations for a lower rate, this measure is now officially headed to November’s ballot, where California citizens will decide on whether it will be enacted into law. While it may seem simple to impose a tax on the ultra-rich, and the benefits appear to be clear, the ballot measure has been met with a fair amount of resistance from billionaires, politicians, and public interest groups alike.

For instance, California Governor Gavin Newsom has opposed this measure from the beginning. According to CNN, Newsom fears the departure of several prominent California billionaires to other U.S. states could harm the state’s economy. In turn, Newsom is now publicly proposing a nationwide tax on billionaire wealth. Other groups, like the California Teachers Association and numerous labor unions, have begun running digital ads to highlight the unintended financial consequences of this one-time tax on billionaire wealth.

While there are numerous arguments as to why not to impose a one-time tax on billionaires in California, they all seem to boil down to one key argument: the impacts of the billionaire tax will be paid by all Californians. Simply put, the proposed one-tax billionaire wealth tax is a tax on both billionaires and non-billionaires alike.

3 Key Ways California’s Proposed Billionaire Tax Will Impact Non-Billionaires?

(1) The Billionaire Tax Might Cause California To Lose – Not Gain – Incremental Tax Revenues

Central to the ballot measure’s impact is the notion that it will generate a lot of incremental tax revenues. However, even the experts cannot agree on an estimate of how much will actually be collected. The ballot measure relies primarily on analysis performed by a team of lawyers and economists (Brian Galle (UC Berkeley School of Law), David Gamage (University of Missouri School of Law), Emmanuel Saez (University of California, Berkeley), and Darien Shanske (University of California, Davis – School of Law). In their modeling, they estimate that the wealth tax will generate $100 billion in incremental tax revenues.

Meanwhile, a conflicting estimation performed by another team of economists at Stanford University – Hoover Institution (Benjamin Jaros, Joshua Rauh, Gregory Kearney, John Doran, and Matheus Cosso) suggests that the collections estimated are overstated and California might only receive as much as $40 billion in incremental tax revenues. What might be alarming to some is that this estimation goes further to estimate the impacts of modest levels of “Capital Flight”, which is the term used to refer to individuals and companies leaving a jurisdiction. Once factoring this in, the Stanford University – Hoover Institution estimation suggests that California will lose an estimated $24.7 billion in tax revenues.

A Tax Policy Network article by Jeff Hoopes (University of North Carolina at Chapel Hill) reconciles these two estimations. He highlights that the Galle et al. analysis, “Offers a simple static estimate of the revenue potential of the tax, adjusted modestly for avoidance behavior. All behavioral effects are either assumed to be trivial or rolled up in the “10% of tax avoidance” parameter. Meanwhile, the Rauh et al. estimation uses a very intensive series of modeling with numerous assumptions that are clearly stated. They also run 10,000 estimations using varying assumptions on the impacts of the wealth tax on capital flight and find that in 71% of the scenarios, California will lose tax revenues if the 5% one-time wealth tax is implemented.

While these conflicting analyses represent different perspectives from highly qualified and expert academic researchers, it can be concerning that only one of the perspectives is being considered by those pushing the ballot measure.

It can be expected that California will spend the incremental tax revenues when they come in. However, if the impacts of the 2026 Billionaire Tax Act result in California losing more tax revenues in the long run, then it will be on the non-billionaires to make up the difference, meaning that they too will be paying these taxes.

(2) Collecting The Billionaire Tax Is Not Free, And It Might Be Difficult

Assuming Californians vote in favor of the ballot measure this November, the state of California will now be left with the problem of collecting the funds. Although it may seem simple to just ask billionaires to write a check for 5% of their wealth, it naturally leads to numerous questions: How much is a billionaire actually worth? Are all of the billionaires’ assets being reported? Does a billionaire who left California have to pay the wealth tax? Are some of the billionaires’ assets exempted? How exactly should billionaires treat wealth in the form of appreciated stock holdings?

Each of these questions may require a team of highly educated experts in their field to answer. Furthermore, even once there is an answer that the state becomes comfortable with, if the billionaire disagrees, there is little to stop the billionaire from taking the matter to court. Thus, the 2026 Billionaire Tax Act will likely require an increase in the number of personnel working for the state taxing authority, and it will likely require additional time spent on litigating the court cases surrounding it. All the while, these additional employees and hours will be paid for by Californian taxpayers, regardless of whether they are billionaires or not.

(3) Company Relocations Might Increase In Response To The Billionaire Tax

Corporate relocations are not new. In fact, in the past decade, we have seen companies like Starbucks and In-N-Out shift operations to Tennessee, and even Yum! Brands (headlined by Kentucky Fried Chicken) relocated to Texas. However, when companies relocate, it can have an adverse effect on the local economy.

Within the United States, corporations do not make up a material portion of tax collections. Instead, it is the individuals that the corporation employs who fund tax collections. In an example, a corporation that generates $1 billion in revenues may only have $50 million in taxable income. This is because $950 million is spent on buying products, hiring employees, and investing in physical and intangible assets.

All of these expenses that corporations face are taxable events that have many downstream tax impacts. For instance, if an employee makes $200,000, the employee will pay tax on that income. That same employee will also buy a home (and pay property taxes) and spend money on goods and services (and pay sales taxes). The people who build the home and provide the goods and services will also do the same.

According to The Sacramento Bee, politicians like U.S. Representative Ro Khanna have claimed that people who think that individuals and companies will leave are “out of touch with where folks are in our state and in this country.” However, large-scale relocations have already occurred as the billionaire tax threat looms, according to FoxBusiness. California, which has long held the title of having the most Fortune 500 companies in the U.S., has already relinquished that title to Texas due, in part, to companies like ExxonMobil, Chevron, Samsung, SpaceX, and X all now being headquartered or legally incorporated in Texas. With each departure, both the corporate tax revenues go away, along with the even larger tax revenues that coincide with the corporations’ employees.

What may be going under the radar is less about the companies that are actively leaving California due to the 2026 Billionaire Tax Act, and, instead, is the companies that are never going to California in the first place. It can be difficult to estimate where and when entrepreneurial activity occurs. For a long time, Silicon Valley has been among the world’s hubs for innovation. However, with Silicon Valley titans being the target of this wealth tax, it begs the question of whether the next wave of innovation will be located in a more tax-friendly location due, in part, to this one-time 5% California billionaire tax. Should this happen, it will be the non-billionaires who pay the price, either by paying more in taxes or by being forced to relocate with their company.