Staff Reports
California voters are being asked to decide on Proposition 40, the so‑called “billionaire tax.” This week more than 100 economists — including several Nobel laureates and former U.S. government economists — put their names on a public letter opposing the measure. The letter makes a clear, bipartisan case that Prop 40 would do more harm than good.
What the economists actually said
The new open letter, signed by over 100 economists, argues Prop 40 creates big economic costs, legal questions and huge administrative headaches. Signatories include Nobel Prize winners like Robert Aumann, Eugene Fama, Lars Peter Hansen and James Heckman, plus former government economists such as Michael Boskin and Glenn Hubbard. Their point is simple: valuing illiquid assets, taxing worldwide net worth and trying to freeze people in place with a retroactive rule is a recipe for chaos, not revenue certainty.
Why this matters for Prop 40
This letter matters because it turns the “expert” debate into a real split. Yes, another set of Nobel laureates backed the tax — but now there’s a large, named group saying the plan is poorly designed. Independent estimates also differ. The state’s nonpartisan analyst says the tax could raise “tens of billions” but warns of possible billionaire departures and lost income‑tax revenue. A working paper from Jaros and Joshua Rauh puts potential revenue much lower and even shows scenarios that could leave the state with a multibillion‑dollar net loss after people move and income tax receipts fall.
Policy problems: Retroactivity, valuation and migration
Prop 40 would hit anyone who lived in California on Jan. 1, 2026, even if the vote comes later. That retroactive twist raises real legal questions and looks like the kind of bait‑and‑switch that scares off investors. Then there’s valuation: how do you fairly price private companies, patents and other illiquid assets? Expect armies of accountants, years of legal fights, and disputes that could swamp the state. And the real kicker — people and capital are mobile. If entrepreneurs decide California is a tax trap, they’ll leave. The state could lose not only wealth but the jobs and income taxes that come with it.
The politics are messy, too. Labor unions and progressive groups back Prop 40, while Governor Gavin Newsom and major business donors oppose it. That split has turned the campaign into a high‑stakes fight with big money on both sides. Voters should know that the question isn’t just how much the tax might raise for hospitals and services in year one, it’s whether the state is willing to trade long‑term growth for a one‑time haul that may never materialize as promised.
Bottom line: the new economists’ letter raises real doubts about whether Prop 40 is worth the risk. If California wants revenue, there are smarter, less destructive ways to get it than inventing a tax that pushes people and investment out the door. Voters should ask whether a plan that sounds good on a bumper sticker will survive the lawyers, accountants and entrepreneurs it will set loose. If the past few decades teach us anything, a tax that drives out capital and creates endless valuation fights won’t be the fix the state needs.
