California’s so-called “Billionaires Tax” is heading to the polls next November. While the Public Policy Institute of California estimates that about 54% of Californians favor the measure, others have suggested that the effects are difficult to gauge. In fact, the ripple effects of this monumental tax, if passed, could extend throughout the wider economy and be paid for by billionaires and non-billionaires alike.
Proposed California Billionaires Tax
California Ballot Initiative No. 25-0024, entitled “Billionaires Tax Act of 2026,” is a unique ballot measure with a clear goal: “to protect access to high-quality, equitable health care and support funding for kindergarten through the 14th grade public education and food assistance programs by raising revenue from a one-time tax on the wealth of billionaires.” The one-time tax is a 5% wealth tax levied on a billionaire’s net worth and will apply to any billionaire who has claimed California residency starting January 1, 2026.
After failed negotiations for a lower rate, this measure is now officially headed to the November ballot, where Californians will decide whether to enact it into law. While it may seem simple to impose a tax on the super-rich and the benefits are clear, the ballot measure has been met with considerable resistance from billionaires, politicians and public interest groups.
For example, California Governor Gavin Newsom opposed this measure from the start. According to CNNNewsom fears that the departure of several prominent California billionaires to other US states could hurt the state’s economy. In turn, Newsom is now publicly proposing a national tax on billionaire wealth. Other groups, such as the California Teachers Association and many labor unions, have started running digital ads to highlight the unintended economic consequences of this one-time tax on billionaire wealth.
While there are many arguments for why California should not impose a one-time tax on billionaires, they all seem to boil down to one basic argument: the effects of the billionaire tax will be borne by all Californians. Simply put, the proposed one-tax billionaire wealth tax is a tax on both billionaires and non-billionaires.
3 Key Ways California’s Proposed Billionaire Tax Will Affect Non-Billionaires?
(1) Billionaires tax may cause California to lose – not gain – additional tax revenue
Central to the ballot’s impact is the idea that it will generate a lot of additional tax revenue. However, even experts cannot agree on an estimate of how much will actually be collected. The ballot measure is primarily based on analysis carried out by a team of lawyers and economists (Brian Galle (UC Berkeley School of Law), David Gamage (University of Missouri School of Law), Emmanuel Saez (University of California, Berkeley) and Darien Shanske (University of California, Davis – School of Law). In their modeling, they estimate that the estate tax would generate $100 billion in additional tax revenue.
Meantime, a conflicting assessment made by another group of economists at Stanford University – Hoover Institution (Benjamin Jaros, Joshua Rauh, Gregory Kearney, John Doran, and Matheus Cosso) suggests that the estimated collections are overstated and that California may only receive up to $40 billion in additional tax revenue. What may be worrying for some is that this estimate goes further to estimate the impact of moderate levels of “Capital Flight”, which is the term used to refer to individuals and companies leaving a jurisdiction. Once you factor that in, the Stanford University–Hoover Institution estimate suggests that California will lose an estimated $24.7 billion in tax revenue.
A Tax Policy Network article by Jeff Hoopes (University of North Carolina at Chapel Hill) reconciles these two considerations. He emphasizes that Galle et al. analysis, “Provides a simple static estimate of the tax’s revenue potential, modestly adjusted for avoidance behavior. All behavioral effects are either considered insignificant or clustered in the parameter ‘10% tax avoidance.'” different hypotheses about the effects of the wealth tax on capital flight and find that in 71% of the scenarios, California will lose tax revenue if the one-time 5% wealth tax is implemented.
While these conflicting analyzes represent different perspectives from highly skilled and specialized academic researchers, it may be troubling that only one perspective is considered by those pushing the ballot measure.
California is expected to spend the additional tax revenue when it comes in. However, if the effects of the 2026 Billionaire Tax Act result in California losing more tax revenue in the long run, then it will be up to non-billionaires to make up the difference, meaning they will pay those taxes as well.
(2) Collecting the billionaires tax is not free and can be difficult
Assuming Californians vote in favor of the ballot measure this November, the state of California will now have the problem of raising the funds. While it may seem simple to simply ask billionaires to write a check for 5% of their fortune, it naturally leads to many questions: How much is a billionaire really worth? Are all billionaires’ assets reported? Does a billionaire who left California have to pay estate tax? Are some of the billionaires’ assets exempt? How exactly should billionaires treat wealth in the form of value stocks?
Each of these questions may require a team of highly educated experts in their field to answer. Furthermore, even once there is an answer the state is comfortable with, if the billionaire disagrees, there is little to stop the billionaire from going to court. Thus, the Billionaire Tax Act of 2026 will likely require an increase in the number of staff working for the state tax authority and will likely require additional time to litigate the court cases surrounding it. Meanwhile, those additional employees and hours will be paid for by California taxpayers, billionaires or not.
(3) Corporate relocations may increase in response to the billionaire tax
Corporate relocations are nothing new. In fact, in the past decade, we’ve seen companies like Starbucks and In-N-Out relocate operations to Tennessee, and even Yum! Brands (titled Kentucky Fried Chicken) moved to Texas. However, when companies relocate, it can have a negative impact on the local economy.
In the United States, corporations are not a significant part of tax collections. Instead, the people employed by the company are the ones who finance the tax collections. In one example, a company that generates $1 billion in revenue may only have $50 million in taxable income. That’s because $950 million is spent on buying products, hiring employees, and investing in physical and intangible assets.
All of these expenses faced by companies are taxable events that have many subsequent tax implications. For example, if a worker makes $200,000, the worker will pay tax on that income. The same employee will also buy a house (and pay property taxes) and spend money on goods and services (and pay sales taxes). The people who build the house and provide the goods and services will also do the same.
According to The Sacramento Beepoliticians like US Rep. Ro Khanna have argued that people who think individuals and companies will leave are out of touch with where people are in our state and in this country. But large-scale relocations have already occurred as the billionaire tax threat looms, according to FoxBusiness. California, which has long held the title of most Fortune 500 companies in the US, has already relinquished that title to Texas due, in part, to companies such as ExxonMobil, Chevron, Samsung, SpaceX and X now being headquartered or legally incorporated in Texas. With each departure, both the corporate tax revenue disappears and the even larger tax revenue that accrues to the companies’ employees.
What may be flying under the radar is less about the companies actively leaving California because of the 2026 Billionaire Tax Act and instead the companies that will never go to California in the first place. It can be difficult to estimate where and when business activity occurs. For a long time, Silicon Valley has been among the innovation hubs of the world. But with Silicon Valley titans the target of this wealth tax, the question is whether the next wave of innovation will be in a more tax-friendly location due, in part, to this one-time 5% California billionaire tax. If that happens, it will be the non-billionaires who pay the price, either by paying more taxes or being forced to relocate with their company.
