California’s Billionaire Tax Is Built on Faulty Research and Could Lead to a Net Loss of Nearly $25 Billion

As California voters prepare to decide the fate of the 2026 Billionaire Tax Act this November, a new report finds the initiative is based on flawed academic research and could ultimately cost the state $24.7 billion more than it raises.

The Independent Institute report, Flawed Research and Real Economic Damage: Examining California’s Proposed Billionaire Wealth Tax, examines the research behind Proposition 40, which would impose a one-time 5% tax on the net worth of California billionaires. The report identifies inconsistencies in estimates of the ultra-wealthy’s tax burden, questions the reliability of data used to support the measure, and presents a negative long-term revenue outlook.

“California’s billionaire tax has been sold to voters as a way to make the ultra-wealthy ‘pay their fair share.’ In reality, this tax would lead to devastating economic losses for California,” said Kristian Fors, the report’s author and a research fellow at the Independent Institute. “When a government becomes overly punitive toward its wealthiest residents, they can just leave. We’re already seeing that with California’s billionaires and the investments and tax revenue they bring with them.”

Among the report’s findings:

1. Billionaire departures could erase the tax’s projected gains: Economists at the Hoover Institution estimate that the wealth tax would have a negative net present value of $24.7 billion once the permanent income tax losses from billionaires who leave the state are factored in.
2. The tax rate cited by economists behind the initiative was based on faulty estimates: Joint Committee on Taxation economist David Splinter adjusted estimates by Emmanuel Saez and Gabriel Zucman, economists who collaborated on the wealth tax proposal, to account for double-counted income and other data errors. For example, while Saez and Zucman estimated the nation’s 400 wealthiest households paid an overall tax rate of 24% between 2018 and 2020, Splinter’s corrected estimate was 38%.
3. California is already seeing capital flight, and Proposition 40 could accelerate it: Six billionaires left California before Jan. 1, 2026, the proposal’s residency cutoff date, representing an estimated $27 billion in potential wealth tax revenue.
4. Similar tax hikes on high earners have been followed by losses: Massachusetts experienced a $4.2 billion decline in adjusted gross income after its “millionaire tax” took effect, while France’s wealth tax led to an estimated 35 billion euros in capital flight.

The report recommends that voters reject the billionaire tax and encourages policymakers to curb government spending, noting that state government expenditures have grown at more than twice the rate of inflation over the past decade.

The Reset Report is the Independent Institute’s flagship policy series for readers who want to understand why something is not working and how it can be fixed. Each report examines a major government failure in depth: the decisions and entities that caused it, the cost to real people, and the path to a genuine fix. The series advances public conversation with rigorous analysis and practical recommendations for reform.

Click here to read the full report.

For more information, contact Robert Ade, [email protected], or (510) 635-3690.

The Independent Institute is a non-profit research and educational organization that promotes the power of independent thinking to boldly advance peaceful, prosperous, and free societies grounded in a commitment to human worth and dignity. For more information, visit Independent.org.