California voters appear poised to reject Proposition 40, a ballot initiative that would have imposed the nation’s first-ever statewide wealth tax. As of Wednesday morning, the proposal was trailing by more than 10 percentage points, with roughly 60 percent of votes counted.
Backed by SEIU-United Healthcare Workers West, the measure sought to levy a one-time 5 percent tax on the wealth of California residents with more than $1 billion in net worth. It faced opposition from business groups as well as Governor Gavin Newsom and Governor-elect Xavier Becerra.
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Californians may have spared themselves a costly experiment. The measure would have imposed a tax that numerous European countries have tried and abandoned after finding its economic costs too difficult to justify. But even if Prop 40 is rejected, the result will be less cause for celebration than it seems. The mere threat of a wealth tax has already inflicted lasting damage on California’s economy, prompting many high net-worth individuals to flee the state, taking their taxable income with them. Other state lawmakers considering a wealth tax should take note.
Supporters of the “billionaire’s tax” promised a windfall for the state. A recent paper coauthored by University of California–Berkeley economist Gabriel Zucman, a leading advocate of the measure, estimated that California’s billionaires collectively held $2.3 trillion in wealth. That includes everything from stocks to private businesses, yachts, art collections, and other assets. Based on that figure, Zucman and his coauthors claimed that the one-time tax could raise roughly $100 billion.
The problem, of course, is that billionaires can change their behavior in response to tax policy just like anyone else. They can move, shift their assets, or take other steps to limit their tax liability. To address that possibility, the ballot measure sought to apply the tax retroactively to any billionaire who resided in California as of January 1, 2026. In theory, that would have made it harder to avoid the tax by leaving the state.
Zucman and his collaborators’ $100 billion revenue estimate assumed what they called “a relatively small avoidance rate” of about 10 percent. That estimate soon proved wildly implausible. Soon after the ballot initiative was introduced in October 2025, several prominent California billionaires began taking steps to relocate ahead of the January 1 deadline. Before the measure had even qualified for the ballot in June, it was clear that far more billionaires had left than proponents had anticipated, out of fears that the measure might pass.
Other economists began challenging Zucman’s projections. In a working paper released last month, Stanford economists Joshua Rauh and Benjamin Jaros estimated that Proposition 40 would have raised only about $30 billion, less than a third of what proponents projected. Their analysis found that the publicly reported departures of just seven prominent billionaires before January 1, including Google cofounders Larry Page and Sergey Brin, had already removed $540 billion in wealth from the state. Those departures alone represented nearly 30 percent of the state’s potential billionaire wealth-tax base—far exceeding the 10 percent avoidance rate Zucman assumed.
Worse, the loss of future income-tax revenue from departing billionaires would have more than offset any potential gains from the wealth tax itself, according to Rauh and Jaros. Even if Prop 40 had passed, California would have been worse off, to the tune of nearly $39 billion in present-value terms.
California’s nonpartisan Legislative Analyst’s Office also warned of substantial ongoing revenue losses. The office estimated that billionaire departures and other responses could reduce state income-tax collections by hundreds of millions of dollars or more annually, resulting in “less money for the state’s general budget that supports education, health care, prisons, and other services.”
Does the measure’s defeat mean billionaires will flock back to California? Don’t count on it. The initiative is representative of California’s growing hostility to entrepreneurship and business investment, and its supporters are already promising to try again. “I am going to be right there, first in line supporting this in the next election cycle if it doesn’t pass this one,” Representative Ro Khanna said Tuesday night. (A competing ballot measure, Proposition 42, would prohibit new state taxes on the ownership of personal property, as well as most retroactive taxes, making a future wealth tax much harder to enact. As of Wednesday morning, that measure was leading by a little less than 9 percentage points.)
For wealthy residents deciding where to live, invest, and build their businesses, concerns about future tax policy may be enough to make California a less attractive choice. Nor are wealth-tax advocates’ ambitions limited to California—or necessarily to billionaires. Zucman himself has said that the goal was never a “one-time” tax, but the beginning of “a broader U.S.-wide movement, ultimately paving the way for a federal wealth tax.”
California may have delivered a different lesson. The mere prospect of a wealth tax can prompt wealthy residents to leave and erode the state’s future tax base. That’s a lesson worth remembering as calls for wealth taxes gain traction elsewhere. Ideas have consequences—even if they don’t come to pass.