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I favor higher taxes on the ultra-wealthy. But I worry that California’s proposed tax on billionaires will inflict lasting damage on the economy and undermine the state’s status as a global home for innovation.
A growing body of economic research suggests that high taxes can make states less attractive to entrepreneurs. If California drives away some of the people who create companies and jobs, ordinary Californians will ultimately bear much of the cost in the form of fewer employment opportunities. The chief beneficiaries will be low-tax states such as Texas and Florida, which stand ready to absorb the jobs that California drives away.
California already has the most progressive state tax system in the nation. Its top marginal personal income tax rate is 13.3%, the highest of any state. Texas and Florida, by contrast, have no state personal income tax. This persistent difference puts California at a disadvantage in attracting and retaining high earners and the businesses they create. A new wealth tax would accelerate the outflow toward low-tax red states.
The empirical evidence supports these concerns. In joint research with Daniel Wilson of the Federal Reserve Bank of San Francisco, my colleagues and I followed the geographic mobility of billionaires on the Forbes 400 list over two decades. We found that billionaires are sensitive to taxes on their wealth. When a state enacts an estate tax — the closest real-world analogue to a wealth tax — 1 in 5 billionaires relocates to another state.
This dynamic is already unfolding in real time. Several of California’s most prominent technology entrepreneurs have already established primary residency elsewhere, well before November’s vote on Proposition 40, a.k.a. the billionaire tax. As California loses billionaires, its tax base shrinks. The state could end up collecting less revenue than the tax proponents anticipate.
The most consequential effect of the tax, however, isn’t on where today’s billionaires decide to live. It’s on where tomorrow’s billionaires choose to start their companies. California’s technology and biotechnology industries — among the principal engines of the state’s economic dynamism — were built by entrepreneurs who chose to establish their businesses here. Their decisions generated not only enormous private fortunes but also millions of jobs, investment and tax revenue. Making California less attractive to the next generation of entrepreneurs could therefore have grave consequences.
Consider the cost of failing to attract the next Sergey Brin and Larry Page, the co-founders of Google. Today, the company they created employs an estimated 85,000 people in California and distributes an estimated $32 billion a year in wages, benefits and stock compensation to its employees in the state. Those employees are estimated to pay $2.3 billion annually in California taxes, while the company itself pays an additional $1.3 billion in estimated corporate taxes.
If California were to lose even a small number of future companies of comparable size because their founders chose Austin or Miami rather than Silicon Valley, the resulting loss of jobs and tax revenue could easily outweigh the revenue generated by the proposed tax.
Consequences would extend well beyond the technology sector. High-tech jobs create demand for workers throughout the local economy. When technology employment expands, so does demand for housing, restaurants, retail, healthcare, education and a wide range of professional and personal services. When technology jobs disappear, some of that demand disappears with them. The people affected if jobs were lost would therefore not be limited to software engineers. They would include construction workers, real estate agents, restaurant employees, nurses, teachers, retail workers and countless others whose livelihoods depend, directly or indirectly, on the economic activity generated by a thriving technology sector.
It is not surprising that the “No on 40” coalition includes teachers, doctors, front-line healthcare workers and first responders. They understand that California’s tax policy affects far more than billionaires. It affects the jobs of ordinary workers.
The wealthiest Americans can and should contribute more to financing public services. But if we want to increase taxes on billionaires, the federal government is the appropriate place to do it. It is far harder for a taxpayer to move from the United States to another country than to move from California to another state.
A tax adopted by California alone would weaken the nation’s most progressive state while strengthening precisely the red states that compete against it for talent, capital and jobs. The question is not whether billionaires should pay more. It is whether California should adopt a tax that encourages them to build their next company somewhere else.
Enrico Moretti is a professor of economics at UC Berkeley.
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Ideas expressed in the piece
The article argues that while the wealthiest Americans should pay significantly more in taxes, any substantial increase on billionaires should be imposed at the federal level, where moving abroad is far harder than moving between states, so that tax burdens cannot be easily avoided and progressive states are not selectively weakened.
The article contends that California already has the most progressive state tax system, with a 13.3% top marginal income tax rate, and warns that adding a wealth tax would deepen California’s disadvantage relative to no‑income‑tax states such as Texas and Florida in the competition to attract and retain high‑earning entrepreneurs and the companies they build.
Drawing on research tracking Forbes 400 billionaires, the piece suggests that ultra‑wealthy residents are highly mobile and responsive to state‑level tax changes, noting that analogous levies such as estate taxes have prompted roughly one in five billionaires to relocate, and arguing that a new wealth tax would accelerate a trend in which founders and investors are already shifting residency to lower‑tax jurisdictions[3][6][8].
Extending this concern, the article argues that as billionaires leave, California’s tax base shrinks and the state may collect far less than proponents project, aligning with analyses that estimate the billionaire tax would raise closer to $40 billion than the advertised $100 billion and could ultimately leave the state with a net fiscal loss once foregone income‑tax revenue is counted[3][6][7].
Focusing on innovation, the article emphasizes that the most consequential effect of the tax is not where today’s billionaires reside but where tomorrow’s founders decide to start their companies, warning that if the next Google‑scale firms choose Austin or Miami instead of Silicon Valley, the resulting loss of jobs, wages, and state tax receipts could easily outweigh the one‑time revenue from the wealth tax.
To show the breadth of economic spillovers, the article describes how high‑tech employment drives demand for housing, restaurants, retail, healthcare, education, and other services, and cautions that slower technology growth would hurt not only software engineers but also construction workers, real‑estate agents, restaurant staff, nurses, teachers, retail workers and other frontline employees whose livelihoods depend on a thriving innovation economy.
In line with these worries, the article points to research by institutions such as the Hoover Institution and the California Tax Foundation that forecasts large, persistent losses in income‑tax revenue and broader economic activity from billionaire departures, with estimates of a negative net present value of roughly $25 billion for the tax and ongoing annual revenue losses in the range of $3.5 billion to $4.5 billion[3][5][8].
Ultimately, the article asserts that a California‑only wealth tax would weaken the nation’s most progressive state fiscal model while strengthening low‑tax competitor states that can readily absorb mobile capital and talent, and concludes that if the goal is to have billionaires contribute more, a federal tax is the appropriate instrument because it cannot be sidestepped by simply building the next company somewhere else within the United States.
Different views on the topic
In contrast, supporters of Proposition 40 argue that a one‑time 5% wealth tax on roughly 200 California billionaires, phased in above a $1 billion net‑worth threshold, could raise about $100 billion over five years, delivering a transformative infusion of revenue to protect healthcare, K‑14 education, and food assistance at a moment when these programs face significant federal cuts[2][4][7].
Proponents stress that the measure is designed as a tax on individuals’ net worth rather than on businesses themselves, contending that it targets extreme personal fortunes without directly taxing corporate entities or their operating income, and therefore should not mechanically reduce business investment or hiring[2].
Drawing on a National Bureau of Economic Research working paper, analysis highlighted in business media notes that California billionaires collectively paid about $4.1 billion in state income tax last year—around 0.2% of their $2 trillion in net worth—and that even in a worst‑case scenario where every billionaire permanently leaves, it would take roughly 25 years for lost income‑tax revenue to equal the $100 billion raised by the wealth tax, suggesting a substantial fiscal gain in the near and medium term[4].
The same NBER‑based analysis indicates that if only about one‑quarter of California’s billionaires departed, the break‑even point where cumulative lost income‑tax receipts match the wealth‑tax windfall would be pushed roughly a century into the future, which proponents cite to argue that plausible levels of migration still leave the state better off financially for decades[4].
At the same time, advocates quoted in national coverage contend that California is likely to be “better off” if the billionaire tax passes, arguing that tapping a small share of extreme wealth is necessary to maintain the state’s standard of living, sustain healthcare access, and avert cuts to vital public services, especially in light of federal retrenchment[1][2].
Supporters further frame the tax as a matter of fairness and democratic accountability, asserting that billionaires currently contribute a relatively modest share of their vast fortunes in state taxes and that a targeted wealth levy is an overdue step toward ensuring that those who have benefited most from California’s innovation ecosystem and public infrastructure help fund the social programs underpinning that success[2][4].
In public debates, proponents also downplay fears of large‑scale entrepreneurial flight, arguing that California’s deep talent pool, robust venture capital networks, and unique innovation clusters in technology and biotechnology will continue to attract founders despite higher taxes, and that using a one‑time levy earmarked for healthcare and education can strengthen, rather than weaken, the broader ecosystem that makes the state a global center for innovation[1][2][4].
Finally, supporters suggest that allowing California to experiment with progressive wealth taxation could inform future national policy by demonstrating that substantial revenue can be raised from a narrow group of ultra‑wealthy residents while preserving long‑run economic vitality, thereby providing an alternative model to reliance on federal reforms that may be politically gridlocked[2][4].
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