Over 100 economists, including Nobel laureates and former government officials from both Democratic and Republican administrations, have signed a letter opposing California's Proposition 40, commonly known as the "billionaire tax." The economists argue that the proposed wealth tax is fundamentally poor public policy and cite numerous issues with its implementation and potential consequences.
Concerns raised by the economists include the highly mobile nature of the tax base. Unlike property, sales, or income taxes, wealth is easily moved across borders, making it difficult to enforce and potentially leading to capital flight. This issue has led to the abandonment of similar wealth taxes in approximately a dozen countries that have adopted them over the past few decades.
Furthermore, Proposition 40 faces particular scrutiny for its retroactive nature, as it would apply to all California residents as of January 1, 2026, despite being voted on nearly a year later. The legality and constitutionality of imposing a retroactive tax, even as a "one-time" measure, are in question.
The administrative burden of valuing the illiquid assets of billionaires is also cited as a significant challenge. Economists question the state's capacity to manage such a complex tax system, particularly given existing administrative difficulties. The proposal could also compel entrepreneurs to sell stakes in their companies, potentially leading to negative economic effects such as declining share prices.
Even notable figures like Mark Cuban have expressed reservations, stating they would not invest in California startups if the tax passes. Reports indicate that at least seven billionaires have already publicly left California, with the possibility of more departing quietly. California Governor Gavin Newsom himself opposes Proposition 40 and supports Proposition 42, which aims to repeal the "billionaire tax" and prohibit future wealth taxes.
The economists conclude that despite the potential to raise significant revenue, the long-term negative impact on California's investment climate would outweigh any short-term financial gains.