Economists: Billionaire tax would hurt, not help, California

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(The Center Square) – Economists told The Center Square this week that California’s billionaire tax proposal could undermine the economy, impacting both the income taxpayers can make and reducing the state’s tax base by as much as $5 billion to $7 billion.

That tax proposal – Proposition 40 – will be on the Nov. 3 election ballot, giving California’s voters the chance to decide whether to levy a one-time 5% tax on residents whose wealth is valued at more than $1 billion. The measure was introduced to shore up funding in the amount of $100 billion for taxpayer-funded public programs such as K-12 education, Medicare and food assistance benefits after federal budget cuts in 2025 impacted those programs.

However, according to a study by Pacific Research Institute economist Wayne Winegarden, the passage of the wealth tax would curb California’s economy and fall short of the tax revenue that advocates of the measure hope to generate.

“One thing I want people to recognize is we are an entrepreneurial state,” Winegarden told The Center Square on Tuesday. “We’re 14% of the national economy, but we get 60% of all VC capital [venture capital] That’s insane, and it just shows how innovative California is and how much our economy depends on that.”

Californians rely on innovation to drive the economy, Winegarden said, noting that' why there's so much wealth in the state and why the average income is higher than that of other states.

“When you start to discourage investment and entrepreneurship here, it hurts the average family,” Winegarden added. “Our guess is you’re going to lose about $1,700 in income growth and about 230,000 jobs that won’t be created over the next five years.”

The jobs losses would hit information technology the most, impacting Silicon Valley, which would in turn affect businesses like restaurants, commercial real estate, gyms and accounting firms, Winegarden said. This will result in $2 billion to $5 billion in lost taxpayer-funded revenue to the state if the proposition passes, he added.

If passed, the billionaire tax would apply retroactively to the roughly 250 billionaires who reside in the state after Jan. 1, 2026, according to the labor union backing the measure, the Service Employees International Union – United Healthcare Workers West.

Representatives from the union were not available for interviews on Tuesday, but in a statement sent via email, Debru Carthan, vice president of the SEIU-UHW, said California’s billionaire class was funding a misinformation campaign about the measure.

“A few controversial billionaires like Sergey Brin would rather spend millions to fund shady opposition campaigns than simply pay their fair share in taxes so millions of their fellow Californians don’t lose their healthcare,” Carthan said. “That’s shameful, but that’s not going to stop the healthcare workers of SEIU-UHW. We have always put our patients and our communities first, and together, we make the impossible – possible.”

Orphe Divounguy, the chief economist at The Center Square, said on Tuesday that taxing unsold assets creates a cash obligation, even when the owner has not received cash from selling them.

While some billionaires could sell their assets to cover the bill, it is possible that selling those assets would put downward pressure on the price of those assets across the market, Divounguy said. In that event, the economist said, the losses would also affect pension funds, retirement savings and other investors holding the same assets.

“That is one way middle-class households could be affected even without owing the tax themselves,” Divounguy wrote. “A decline in asset values could therefore weaken both retirement finances for older Americans and overall consumer spending. The size of that spillover is uncertain, but it belongs in the discussion of who ultimately bears the cost.”