Economists Make the Case For and Against California’s Billionaire Tax

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Alexis Madrigal (1:31)

Welcome to Forum. I'm Alexis Madrigal. Proposition 40 is one of the most contentious and intriguing propositions of recent years. It's a one-time 5 percent wealth tax on billionaires. It would raise a substantial amount of money, though there are questions about how much net revenue it could pour into state coffers, and those dollars would mostly be used to fund health care.

Our first guest is Gabriel Zucman. He is a UC Berkeley economist and author of the admirably straightforwardly named book, We Need to Tax Billionaires. He helped to develop the proposition. Welcome Gabriel.

Gabriel Zucman (2:06)

Thanks for having me.

Alexis Madrigal (2:07)

Our second guest is Joshua Rauh, an economist and professor at Stanford Graduate School of Business. He authored a study about the potential effects of the wealth tax and has emerged as perhaps the leading economist voice opposing Prop 40 Welcome, Josh.

Joshua Rauh (2:22)

Good to be in the show.

Alexis Madrigal (2:24)

Okay, you guys ready? Ready to fight?

Gabriel, let's start with you. You did help develop this proposition. Let's just start with the basics. What's the measure due? Who's subject to the tax? Where's the money go?

Gabriel Zucman (2:39)

This would be a one-time tax on billionaires. Only people who have more than $1 billion of net wealth would be affected. We're talking about roughly 250 people in California, mostly Silicon Valley tech billionaires, who would have to pay a one-time tax equal to 5 percent of their wealth. For context, their wealth has grown by 170 percent since 2023, and they would have to pay just 5 percent. We can expect about $100 billion in tax revenue for the state with this tax.

90 percent of the money would go to health care, and California needs this money, because the big budget bill that was passed last year by Congress has defended Medicaid. And if nothing is done, 2 million people in California are going to lose their health insurance. The fraction of uninsured individuals will increase from 6 percent to 10 percent.

The California governor, Gavin Newsom, or the California legislature haven't proposed any solution, so voters can solve this problem by themselves with Prop 40

Alexis Madrigal (4:12)

I'm curious, just like, is this for you primarily a fiscal measure about the state's budget, or is it more of a moral one about the way that you think the state should be approaching billionaire wealth?

Gabriel Zucman (4:25)

Well, it is a budget fiscal issue.

There's a major shortfall of revenue for Medicaid, and the question is, where do we find the money? Now, you have essentially two big levers. There is the California income tax, and there is this potential wealth tax on billionaires. What's really important to understand is this. When I first realized that, it blew my mind. If you look at the total wealth of California's 250 billionaires, we're talking about $2.3 trillion today, this is as big as the total income of all Californian families. Their total taxable income, AGI, is also $2.3 trillion.

So essentially, if you want to get $100 billion in revenue for the state, you can do it in two ways, either with a 5% tax on the wealth of 250 billionaires, or with an increase in the income tax of 5% points for all Californian taxpayers.