California's $110 Billion Billionaire Tax Gamble Faces Flight

California voters will decide in November on Proposition 40, a one-time 5% tax on the wealth of every billionaire residing in the state on January 1 of this year — a levy backers claim would raise roughly $110 billion. Six Nobel Prize-winning economists called it "the first-ever tax on billionaire wealth enacted anywhere in the world" in an open letter. "It will kickstart a movement to tax ultra-high-net-worth individuals in other states – and eventually at the federal level and in other countries," they wrote, adding that the vote "may well come to be seen as a turning point in the battle between democracy and oligarchy."

Why is California targeting wealth, not income?

The top 1% of Americans hold over 31% of the nation's wealth — about $55 trillion in net worth. A recent research paper found the country's richest 384 oligarchs paid just 24% of their economic income in taxes in 2025, versus 30% for the average taxpayer. ProPublica reported that some of the richest Americans, including Elon Musk, Jeff Bezos, Warren Buffett and Michael Bloomberg, live largely tax free.

As of early October, 260 billionaires lived in California with nearly $2.5 trillion in combined wealth, according to the Forbes billionaires' list. A 5% levy would raise about $110 billion, much of it earmarked to replace Medicaid funding cut by Trump's One Big Beautiful Bill Act. California's billionaire count actually grew by 20 between January and October, and their collective wealth rose by $400 billion this year.

Who is fighting it?

Governor Gavin Newsom, a likely 2028 Democratic presidential contender, opposes the measure, as does Xavier Becerra, the Democrat running to succeed him. Both fear a billionaire exodus to lower-tax states.

Google co-founder Sergey Brin has helped coordinate some $200 million to defeat Prop 40 and promote countervailing Propositions 41 and 42, which would bar retroactive taxes and forbid new taxes on financial assets and other personal property. A September poll found Prop 40 falling just short of majority approval.

The exits have already begun. In the run-up to Christmas 2025, Brin and Google co-founder Larry Page moved many business interests out of California and bought homes out of state. Former Uber CEO Travis Kalanick left for Texas following Musk. Peter Thiel moved his residence to Miami last year.

The Nobelists argue the ballot initiative was timed to trap billionaires: "Some affected taxpayers may have tried to leave between the time they learned about the proposed ballot initiative – in late November 2025 – and January 1st of 2026. But the window was so short that it is unlikely any significant number of billionaires successfully cut ties with the Golden State in such a short period of time."

What does the economics say about billionaire flight?

Skeptics have history on their side. George W. Bush's 2001 tax act eliminated the federal credit offsetting state estate taxes, making domicile suddenly costly. By 2010, over a fifth of Forbes 400 billionaires originally living in estate-tax states had moved to non-estate-tax states; only about 1% moved the other way. University of California Berkeley economist Enrico Moretti and Daniel Wilson of the Federal Reserve Bank of San Francisco found that by 2017, estate-tax states had lost 23 of the 72 Forbes 400 billionaires who lived there in 2001. Forbes 400 wealth subject to state estate taxes fell from roughly $203 billion to about $122 billion over 16 years.

Yet flight isn't guaranteed. A Cornell sociologist and a Treasury economist found the 2017 cap on state and local tax deductions had almost no effect on affluent migration rates in the first year. New York levies a 3.9% city income tax on top of a 10.9% state rate, against zero in Miami, yet still counts 154 billionaires — nine of the 10 richest live in the city, per an Oxfam report.

Stanford economists conclude Prop 40 would raise only about $30 billion, while lost income tax revenue would cost the state nearly $39 billion in net present value — a net loss. Litigation over retroactive taxation and due process looms, and foreign billionaires may escape via double taxation treaties. Moretti and Wilson also found the very rich are highly sensitive to estate taxes, and that top scientists and engineers leave when income taxes rise. "People do leave," Moretti said. "These are not billionaires, but only highly paid workers."

Is there a federal path instead?

The tax gap between red and blue states is enormous: California's top marginal rate is 13.5%, Florida's is zero. The U.S. government collects almost 3% of GDP less in taxes than at the turn of the century, and the average OECD central government raises twice as much as a share of GDP as Washington. Economists Erick Zwick of the University of Chicago and Owen Zidar of Princeton calculate that restoring the Clinton-era tax schedule would raise $5 trillion over a decade. Brin has compared Prop 40 to the Soviet Union he fled in 1979; the vote next month will test whether a single state can tax an oligarchy that the federal government has declined to touch.