The Fiscal Losses from California's Billionaire Tax Act

A textbook case of killing the goose that lays the golden egg.

This past fall, a coalition of labor unions filed the 2026 Billionaire Tax Act (“the Act”) with the California Attorney General. The ballot initiative would impose a “one-time” 5 percent tax on the worldwide net worth of individuals with assets exceeding $1 billion. In a report proponents of the Act estimated revenues of $100 billion. That figure begins with the $2.19 trillion aggregate net worth of California's billionaires, applies the 5 percent rate to arrive at $109.5 billion, then assumes that avoidance and evasion will reduce collections by just 10 percent.

We decided to do calculations of our own, and we found much different results. Our key findings are as follows:

• We project wealth tax revenue of approximately $40 billion, compared to the $100 billion claimed by proponents

• The net present value (“NPV”) of the Act, which reflects expected wealth tax revenues as well as losses of income tax revenues from departing billionaires, is NEGATIVE $24.7 billion; across 100,000 simulations, 71 percent of scenarios yield a negative NPV.

• It is incorrect to think of the measure of a one-time tax based on the Act’s changes to California’s state Constitution.

How did we get such different estimates?

First, after correcting for nonresidents inaccurately included in the proponents’ base and excluding directly-held residential real estate, our baseline revenue estimate is $94.2 billion. While real estate reduced the tax base to some degree, the major reason our revenue estimate differs so significantly is because the proponents’ estimate includes a few billionaires who are featured on the Forbes billionaire list but departed California well before the announcement of the announcement of the Act. The most notable error was the inclusion Larry Ellison who left California for Hawaii in 2020. At the statutory 5 percent rate, his inclusion inflates projected revenue by approximately $12.3 billion. Assuming the author’s 10 percent avoidance rate to our corrected base of $94.2 billion produces a revenue estimate of approximately $84.8 billion, roughly $15 billion below their headline figure.

Second, the proponents’ 10 percent avoidance assumption is obsolete before signatures have even been submitted. Between the initiatives announcement on October 15, 2025 and the residency snapshot date of January 1, 2026, just six publicly confirmed departures eliminated far more than 10 percent of the base. During this period, nearly 30 percent of California’s wealth tax base left the state, and this only includes the billionaires who publicly announced their departures (see Table 1).

Accounting for these 6 departures plus the 3 nonresidents, and excluding residential property, projected revenue falls to $67.5 billion.

Third, because this estimate only captures the billionaires whose relocations were reported in the media and omits any quiet departures, we rely on the wealth tax literature to estimate the likely full outmigration response. Evidence from European wealth taxes implies close to double the response that we observed from the publicly announced departures. Importantly, because California billionaires face only an interstate relocation cost rather than a cross-country relocation cost, which underlies the European estimates, it is conservative to assume the effect on outmigration will be more substantial. Based on that interpretation, we estimate that the Act will collect approximately $40 billion in wealth taxes, which is less than half of the initial $100 billion estimate made by the proponents.

Consistent with this, there are many other rumored departures or those that may have occurred after the snapshot date, including Mark Zuckerberg who announced his exit for Florida in early February 2026. While the Act’s supporters contend that if a billionaire was resident on January 1, 2026, then they would be eligible for the full tax if it is passed. However, that is certainly contestable given the retroactive nature of the tax.

Fourth, we considered the lost income tax revenue from the departing billionaires and ran a set of calculations to determine the NPV of the Act’s cost. Using public tabulations provided by California’s Franchise Tax Board (FTB) and standard assumptions about the distribution of high earners, we estimate that California’s billionaires contribute $3.3-$5.8 billion annually in California income taxes. Our approach is to calculate a present discounted value of the fraction of that stream of payments represented by departing billionaires, using the standard Gordon growth formula.

Over 100,000 simulations with varying discount rates, wealth tax revenues, and lost income tax revenues associated with departures, we find that 71% of scenarios in which the Act is instituted yields a negative NPV, signaling the Act would generate a net cost to the state of California. The central estimate (average) across these draws is –$24.7 billion. While this signals tremendous costs from instituting the levy, the estimate remains relatively conservative in that we exclude the possibility of spillover effects, lost sales tax, property tax, and business activity from the analysis.

Our income tax loss estimates are also conservative in another respect: we assume that high-net-worth individuals with assets less than $1 billion will continue paying their California income taxes in full for the foreseeable future, even as many in that cohort are likely accelerating their relocations to Texas and Florida as they observe California’s billionaire wealth tax experiment.¹

Finally, and related to that, despite what has been claimed by its proponents, the Act will likely not be a one-time tax in any meaningful sense. Based on the experience of California with Proposition 30, which introduced progressive income tax rates of up to 13.3% in 2012 as a temporary measure but was then extended by Proposition 56 through 2030 and may well be extended again, taxpayers are right to be skeptical that measures billed as temporary in fact will remain temporary once the administrative and legal frameworks are in place.

Furthermore, the Act makes permanent changes to the California Constitution. It consists of an amendment that permanently removes California’s existing 0.4 percent cap on taxes on intangible personal property. Once that cap is lifted, future ballot initiatives or legislative action can impose additional wealth taxes at any rate, on any threshold, and at any time. If California voters decide to enact this tax and if it survives the courts, California can no longer credibly commit to not enacting wealth taxes in the future. Billionaires and their advisers understand this: the rational response is not to evaluate the 5 percent levy in isolation, but to estimate the expected present value of all subsequent taxes the amendment makes possible.

Even if one of the 29% of scenarios in our modeling where the NPV is positive come to fruition, the amount of present value revenue would still be small. Policies that distort behavior but generate little or no net revenue gain are not harmless as they may nonetheless impose substantial costs on residents through reduced employment, investment, and income. Certainly, billionaire departures, and the fact that new founders would think twice about locating in California, have significant potential economic effects if the location of jobs and innovation shifts elsewhere.

Ultimately, taxation does not occur in a vacuum. If Californians approve this measure in November, they may discover too late that the wealth they hoped to tax has already left the state—with jobs and economic opportunities not far behind.

1. At least one member of the Forbes list is actively advising people in this position to leave the state.