When a government faces looming budget shortfalls, taxing its wealthiest residents can seem like a straightforward solution. The idea behind a wealth tax is simple: collect a percentage of vast personal fortunes, bring billions into state coffers, and fund public services without raising levies on ordinary workers. Yet because capital and wealthy taxpayers can relocate, taxing wealth often leads to unexpected behavioral responses.
In California, voters are scheduled to decide on Initiative No. 25-0024, known as the 2026 California Billionaire Tax Act. The proposal seeks to impose a one-time 5 percent tax on the worldwide net worth of individuals who were California residents as of January 1, 2026, and whose net worth exceeds $1 billion, with net worth valued as of December 31, 2026. Early estimates from proponents suggested the measure could generate roughly $100 billion. However, an NBER working paper presents a sharply different outlook, indicating that the tax could generate far less revenue than expected while permanently eroding the state’s tax base.
Weighing Upfront Cash Against Future Losses
The study was authored by Benjamin Jaros and Joshua Rauh, both affiliated with Stanford University and the Hoover Institution. They sought to examine how taxpayers would react to the proposed tax and what the policy would mean for California’s broader fiscal health over time.
To evaluate the proposal, the researchers used a standard financial metric known as net present value. In corporate finance, net present value compares money received today against money paid out or lost in the future, adjusting for inflation and investment returns. In this context, the authors treated the wealth tax as a one-time cash inflow. They then weighed that sum against the annual income tax revenue California stands to lose if billionaires permanently relocate to escape the levy.
Under the initiative, taxable assets include worldwide business interests, investments, and personal property, while residential real estate is excluded to prevent conflicts with California’s Proposition 13. The measure also removes an existing 0.4 percent constitutional cap on taxes applied to intangible personal property. The authors argue that calculating the policy’s true fiscal effect requires looking beyond a static accounting of wealth and assessing the real-world choices of the taxpayers involved.
Tracking Wealth and Pre-Vote Departures
The researchers began by building a person-by-person database of California’s billionaire population. Starting with published wealth rankings, they verified residency status and identified 212 domestic billionaires living in California at the time the initiative emerged. Together, these individuals held an estimated $1.89 trillion in aggregate wealth.
Before computing potential tax receipts, the authors adjusted the data to mirror the actual language of the measure. They subtracted identified residential real estate holdings for each individual, which reduced the taxable wealth base by roughly $8.2 billion. They also excluded international billionaires whose worldwide holdings face significant legal and treaty barriers to state taxation.
The researchers then examined how high-net-worth individuals responded once the ballot initiative was filed in late 2025. Between the initiative’s announcement and the January 1, 2026 residency cutoff, seven prominent billionaires publicly established residency outside California. These departures included Google co-founders Larry Page and Sergey Brin, Palantir co-founder Peter Thiel, and filmmaker Steven Spielberg. These seven individuals alone accounted for nearly $540 billion in wealth, effectively eliminating 28.5 percent of the state’s domestic billionaire wealth base before signature gathering was even completed.
Legal Hurdles and the Collectibility Discount
Beyond taxpayer migration, the researchers evaluated the legal uncertainties surrounding the measure. The proposed tax faces potential constitutional challenges regarding its retroactive effective date, its attempt to tax assets held outside California, and its single-day residency determination. The initiative itself includes an unusual severability clause instructing courts to rewrite dates or terms if specific sections are struck down.
To account for this litigation risk, the authors drew on an established corporate accounting standard known as ASC 740-10. Under this framework, companies do not count uncertain tax positions as assets unless they are more likely than not to survive legal scrutiny. Applying this conservative principle to state budgeting, the researchers assigned a 50 percent collection probability to the remaining tax base.
The authors also highlighted a disputed provision regarding how company ownership is calculated. Under the text of the initiative, founders holding dual-class shares with special voting rights could be assessed on the total voting control they wield rather than just their underlying economic equity. The researchers observed that for tech founders with super-voting shares, this interpretation could result in tax liabilities large enough to threaten their voting majorities, providing a strong financial incentive to leave the state quickly.
Factoring in the confirmed departures, the exclusion of foreign nationals, and the legal discount, the authors project that the state will collect approximately $30 billion, with a plausible range of $28 billion to $36 billion. This estimate represents less than a third of the $100 billion projected by earlier reports.
The Ongoing Drain on State Income Taxes
Collecting an upfront tax can still benefit a state treasury if there are no offsetting costs. However, California’s state budget depends heavily on progressive personal income taxes paid by high earners. The researchers set out to measure how much income tax revenue California risks losing when its wealthiest residents move away.
Using published data from the California Franchise Tax Board, the authors estimated that the state’s 212 billionaires collectively contribute between $3.3 billion and $5.8 billion each year in personal income taxes. When a resident leaves for a jurisdiction with no personal income tax, such as Texas, Florida, or Nevada, that annual income tax payment disappears permanently.
The researchers calculated that if the state collects $36 billion from the wealth tax, it reaches a financial break-even point if roughly 24 percent of billionaire income taxes are lost, assuming a 3 percent real discount rate. A real discount rate is the rate used to convert future, inflation-adjusted payments into today’s dollars. The authors note that the share of the wealth base that has left (28.5 percent) is not the same as the share of income taxes lost. They assume that between 30 and 60 percent of billionaire income tax payments are lost, with a central value of 45 percent. That exceeds the break-even threshold at every discount rate they considered, so the loss of income taxes overtakes the one-time revenue gain. The authors assume departing taxpayers are unlikely to return because the constitutional changes in the measure leave the door open for future wealth taxes.
Simulating Fiscal Outcomes
To account for uncertainty across all variables, the authors conducted a Monte Carlo simulation running 100,000 randomized trials. Each trial drew different combinations of wealth tax revenues, real discount rates, and lost income tax receipts across plausible ranges.
The simulation revealed that 85 percent of plausible scenarios resulted in a negative net present value for California’s treasury. Across all 100,000 runs, the mean net present value was negative $38.9 billion, with a median result of negative $35.3 billion. In only 15 percent of scenarios did the one-time wealth tax exceed the present value of the lost annual revenue stream, and even in those cases, the net gains were relatively small.
The authors compared their observed departure rates with established research on European wealth taxes, such as studies of Swiss cantons. They found that California billionaires relocated at rates consistent with recurring annual wealth taxes rather than a strictly one-time levy. The authors suggest that taxpayers treated the measure as the beginning of an ongoing wealth-tax policy, especially since the state legislature would be granted the authority to amend the act with a two-thirds vote.
Policy Trade-offs and Limitations
The authors acknowledge several limitations in their work. Individual income tax payments are confidential, requiring the researchers to estimate annual contributions by modeling top tax brackets. Asset valuations for closely held private companies and real estate portfolios also involve inherent estimation challenges.
At the same time, the authors note that their analysis focuses strictly on personal income taxes and does not include potential losses from sales taxes, property taxes, or broader business activity, such as employing other income taxpayers. When high-capacity entrepreneurs leave a region, the shift in business activity and employment can create broader economic effects that fall outside the state tax ledger.
The findings offer evidence that targeted wealth taxes can provoke rapid relocation decisions among mobile high earners. When those taxpayers leave, the recurring losses in traditional revenue streams can outweigh the upfront windfall, leaving public finances deeper in the red.
