Hasta la Vista, Baby

This November, Californians will vote on Proposition 40, a ballot initiative called the 2026 Billionaire Tax Act. If approved, the measure would retroactively impose a 5 percent tax on the wealth of individuals worth more than $1 billion who were California residents at the beginning of 2026. Supporters estimate that the tax could raise as much as $100 billion for the state to spend on public programs.

Even before the vote, several billionaires have already left California or publicly announced plans to do so.

This would not be the state’s first billionaire exodus. Beginning in 2020 and accelerating in 2021, a wave of high-profile entrepreneurs and companies moved their headquarters out of California. Many cited the state’s high taxes, heavy regulation, and increasingly contentious political climate. Among the most prominent examples were Elon Musk, who moved Tesla’s headquarters, and Larry Ellison, who moved Oracle’s.

That earlier exodus raises a simple but important question: what actually happens to a state’s economy when its wealthiest entrepreneurs and investors leave?

This report examines that question by studying what happened to California’s economy following the wave of billionaire departures in 2021. The goal is to shed light on the potential economic consequences if California experiences another wave of high-net-worth residents leaving the state due to the wealth tax.

The raw data cannot answer that question. We can observe what actually happened to California after high-net-worth individuals and companies began leaving in the early 2020s, but we cannot directly observe what would have happened if they had remained.

To estimate this counterfactual, the study employs a synthetic control method. Using data from other U.S. states, the method constructs a “synthetic California”—a statistical twin created by combining states that closely resembled California before 2021 but did not experience a comparable wave of billionaire departures.

The synthetic California is constructed using characteristics such as employment, tax revenue, the size of the technology sector, economic freedom, educational attainment, and housing prices. The goal is to create a comparison unit that closely tracks California’s economic trajectory before the billionaire exodus.

Once the synthetic California is constructed, its post-2021 performance can be compared with that of the actual California. Because the synthetic California is designed to resemble California before the exodus, differences that emerge after 2021 provide an estimate of the economic effects associated with the departure of billionaires.

The results suggest that California paid an economic price following the 2021 exodus. Compared with its synthetic counterpart, actual California experienced slower economic growth, declines in income per capita, fewer jobs, lower tax revenue, and a decrease in population. The analysis also finds some evidence that private-sector research and development growth slowed, although that estimate is less robust and should therefore be interpreted cautiously.

California’s overall economic performance fell behind its synthetic counterpart after 2021. In 2022, California’s economy didn’t grow at all, while its synthetic twin grew by 2.67 percent that year. That gap persisted through 2024, amounting to nearly $100 billion in foregone economic growth relative to the synthetic control.

The same pattern appears when looking at economic output per person. In 2022, real GDP per capita in California was essentially flat, while it increased by 1.70 percent in synthetic California.

The hit to jobs shows up a little later, in 2023, when California had 1.13 percent fewer jobs than its synthetic twin. By the end of the analysis period, this gap amounted to approximately 78,693 fewer jobs.

Perhaps the most important, and most ironic, finding. A wealth tax is designed to raise more money for the state. But if wealthy people leave in response, the state can end up collecting less. By 2023, California’s state tax revenue was 1.66 percent below the level of its synthetic counterpart. Across 2021–2024, this difference implies almost $50 billion less in Taxes on Production and Imports (TOPI), which includes business-chargeable tax liabilities such as sales, property, and excise taxes. That amount is roughly half of what proponents of the wealth tax seek to raise.

The exodus was not limited to billionaires. Population growth in California turned negative in 2020, and the gap between California and its synthetic control has kept widening since then. This suggests that California may have been losing residents at a faster rate than would have been expected based on the experience of otherwise similar states. By the end of the analysis period, California’s population was approximately 813,000 lower than that of its synthetic counterpart.

Finally, private research and development spending in California hasn’t kept pace with its synthetic counterpart in recent years. However, unlike the other results, this effect is less conclusive than the others. The estimated gap is not large enough to rule out random chance as an explanation.

Taken together, these findings provide a useful reality check for anyone weighing whether pushing high-net-worth residents out of California is likely to benefit the state in the long run.

The evidence suggests that the 2021 billionaire exodus was associated with more than the loss of a few famous entrepreneurs. Compared with its synthetic counterpart, California subsequently experienced slower growth, fewer jobs, a smaller population and, somewhat paradoxically, lower tax revenue. In the case of tax revenue, the result is particularly ironic: policies intended to raise more revenue could ultimately shrink the tax base if they encourage wealthy residents and the economic activity associated with them to leave.

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