Economist warns billionaires tax could cost California $25B

(The Center Square) – The proposed California billionaires tax would cost the state more money than it would bring in if the Golden State’s “golden goose” flocks to other states, according to a Stanford economist.

Joshua Rahu, a finance professor at the Stanford Graduate School of Business, predicted the billionaires' departures would cost California $25 billion.

As work progresses on the one-time 5% wealth tax on California’s billionaires, opponents have voiced their concerns about the economic damage that could come to the state if the billionaires tax makes it to the Nov. 3 ballot and passes.

“Since this tax is earmarked to a special fund, the state will still have the $93 billion structural deficit even if the wealth tax passes and manages to collect a few billion dollars,” Rauh said in a recent presentation about the 2026 Billionaire Tax Act. “So this tax is not a solution to California’s financial problems.”

According to previous reporting from The Center Square, California faces structural deficits despite growing revenues from high income tax from Big Tech companies, many of which are headquartered in California. Enthusiasm related to artificial intelligence technology and high stock valuations from those companies are central to the state’s high level of income tax collection.

Despite increasing revenues to the state, spending is outpacing revenues, which Rauh acknowledged during his presentation.

“This is not a revenue problem,” Rauh said. “Since 2019, revenues are up by 55%, but for what it’s worth, spending is up by 68%. It’s hard to look at that and say California faces a major revenue problem.”

Rauh also said during the presentation at Stanford University that the revenue estimates the billionaires tax projected are too optimistic and that the tax would make challenges related to economic inequality worse in California. One of the main arguments against the billionaires tax, Rauh added, included that many of California’s most well-known billionaires already left the state, taking with them the money they could have continued to pay in income taxes to California.

According to a report from the National Taxpayers Union Foundation, the proposed billionaires tax already cost the state money before even heading to the ballot. The state’s billionaires, anticipating the Jan. 1, 2026 retroactive effectiveness date for the tax, left the state before the first of the year or shortly thereafter, presumably to avoid having to pay the billionaires tax.

Google co-founders Larry Page and Sergey Brin, PayPal co-founder Peter Thiel and venture capitalist David Sacks have all left the state, according to previous reporting by The Center Square. Facebook CEO Mark Zuckerberg also decided to leave California, moving to Florida.

A loss of state income tax revenue could actually offset any revenue gains from the billionaires tax, Rauh said during the presentation. “This measure would cost the state $25 billion."

The loss of just a small number billionaires would mean long-term negative consequences for California, according to Wayne Winegarden, a senior fellow in business and economics at Pacific Research Institute in Pasadena.

“By discouraging entrepreneurship and discouraging innovation, we’re reducing the vibrancy of the economy, which means opportunity across the scale is less,” Winegarden told The Center Square on Monday. “So there’s going to be fewer jobs, not just for high-paid AI engineers, but construction, just across the board there will be a worse economy.”

Inequality - one of the main challenges the billionaires tax aims to address - would actually get worse because of the tax, Winegarden added.

“It worsens inequality because if incomes fall at the bottom end, that is a bigger problem,” Winegarden said. “You’re not changing inequality. You’re just changing where that inequality lives. Surely that’s not the intention of the proponents of this. They want the government to expropriate this wealth, not for this wealth to be existing in the country elsewhere.”

Also on Monday, officials with the union backing the measure told The Center Square that the billionaires tax is a quarter of the way to getting on the Nov. 3 ballot.

Representatives from the Service Employees International Union – United Healthcare Workers West said Monday that the petition to get the billionaires tax on the November 2026 ballot recently passed 25% of the required number of signatures. According to the California Secretary of State’s Office, 874,641 have to be collected to get on the ballot.

The billionaires’ tax, which Service Employees International Union – Healthcare Workers West started campaigning for in late 2025, aims to generate enough revenue to help offset federal budget cuts to public service programs like Medi-Cal, which offers no-cost or low-cost health care to low-income individuals in California.

“We need to put humanity first over greed,” Debru Carthan, a radiologic technologist for Kaiser, told The Center Square on Monday. “This is about being our brothers’ keeper. Those who leave California - they are showing their greed; they’re showing their selfishness. And the very patients who will die are the ones who helped them make the billions that they have now.”

An estimated 200 rich Californians, according to the union, have a combined wealth of more than $2 trillion. The tax would only apply to residents who are worth more than $1 billion, which would be measured in the monetary value of assets such as stocks, bonds and artwork.