Staff Reports
The newest blow to California’s billionaire tax comes from an unlikely place: a careful, number‑crunching NBER working paper by two Stanford researchers. Their work shows the flashy promises for Proposition 40 don’t survive a sober look at who will leave, who already left, and how much income tax the state will lose for years to come. In short: the supposed $100 billion windfall looks more like a one‑time headline and a long‑term hole in the budget.
NBER study: Not the $100 billion windfall its backers promised
The paper’s litigation‑weighted estimate pegs the one‑time haul at roughly $30 billion, not the $100 billion supporters trumpet. The authors explicitly account for already confirmed departures and the legal risks the measure faces. They treat nearly 30 percent of the taxable base as gone before the ballot even drops, which explains a big slice of the shortfall. If you thought piling on one more tax would magically make up for years of bad policy, the math here is a rude wake‑up call.
Why California could end up poorer, not richer
Here’s the hard number to remember: under the study’s central scenario the net present value is about negative $38.9 billion. That’s after counting likely lost state income tax receipts from billionaires who move away. The paper estimates current billionaire income‑tax payments in California run between about $3.3 billion and $5.8 billion a year, and departures linked to the wealth tax could cut that by roughly $1 billion to $3.5 billion annually. In the Monte Carlo runs the authors ran, 85 percent of simulations produced a negative outcome. Those are not comforting odds.
How the researchers reached this conclusion
They used public billionaire wealth lists, residency evidence, and prior estimates of how sensitive movers are to taxes. Then they ran 100,000 simulations over a range of plausible values, and they baked in a “litigation survival” discount to reflect legal challenges the tax would face. The result is a cautious, transparent estimate that shows wide uncertainty — but also a clear tilt toward net losses once migration and legal risk are included.
Politics, legal risk, and the real world of movers and money
This isn’t just a paper for wonks. It’s targeted at a live ballot fight where supporters promise new programs and opponents warn of a brain‑drain and shrinking tax base. The authors’ approach highlights the real world: people and businesses react to tax changes, and some wealthy residents already changed their ties to the state. Add the near‑certain court fights, and the expected revenue gets smaller still. Sacramento can’t paper over that with slogans about fairness.
Voters should treat big ballot promises like they do any car sales pitch: read the fine print, test drive the math, and don’t assume the warranty covers everything. Proposition 40 sounds bold in an ad. In the ledger the NBER paper lays out, it looks risky enough to make California pay for a moment of virtuous anger for years to come. That’s the real debate: a one‑time splash of cash today, or a steady stream of tax revenue and jobs lost tomorrow. Pick your risk, but don’t be surprised if the bill arrives after the balloons have popped.
