Stanford University economists have warned that California's proposed billionaire wealth tax could ultimately leave the state with less tax revenue than before, despite being designed to generate billions of dollars for healthcare. Seven billionaires have already publicly moved out of California, removing about $540 billion, or 30% of the state's total billionaire wealth from potential taxation, according to a working paper published by the National Bureau of Economic Research by Stanford economists Benjamin Jaros and Joshua Rauh. The billionaires who have left the state include venture capitalist Peter Thiel and Google co-founders Larry Page and Sergey Brin.
Because additional billionaires have likely quietly moved since the tax proposal was announced, the measure may ultimately generate only about $30 billion, far less than the $100 billion estimated by its proponents, the economists said. The proposed tax would apply a one-time 5% state tax on billionaire wealth. California could lose roughly $1 billion to $3.5 billion a year in income tax revenue due to its shrinking billionaire population, Jaros and Rauh estimated. If those losses persist permanently, their value in today's dollars would exceed the wealth tax proceeds by about $39 billion, the economists said.
Jaros and Rauh wrote in their paper that their findings suggest the Billionaire Tax Act will not fulfill its primary function. "Although the Act was designed to raise revenue, behavioral response prior to voting has eroded most of the projected tax base," they said. The measure, called Proposition 40, was introduced by the Service Employees International Union-United Healthcare Workers West, a healthcare worker union.
Other economists have reached different conclusions about the tax. Economists including Daron Acemoglu of MIT and Joseph Stiglitz of Columbia University, both Nobel Prize winners, have signed their support for the measure, pointing out that California has attracted more venture funding since the wealth tax was announced. In a September letter, they wrote that adequate public spending on health, education and public infrastructure, not tax breaks for billionaires, will allow California to thrive. Voters are apparently divided on the tax, with about 46% of likely voters in favor of Proposition 40 and 43% opposed, according to a poll from Citrin-Politico. Dave Regan, leader of the union that introduced the measure, told CBS News that he is "pretty confident" the tax will pass, calling it a "novel idea" designed to address an emergency.
For California savers, borrowers and business owners, the outcome of the vote will determine whether the state raises an estimated $30 billion for healthcare spending or potentially faces larger income tax losses from departing billionaires.