Backers say the one-time 5% tax could raise more than $100 billion
The four academics behind the measure are Emmanuel Saez, a Berkeley economist; Brian Galle, a law professor at UC Berkeley; Darien Shanske, a law professor at UC Davis; and David Gamage, a tax scholar at the University of Missouri’s law school. The group has advised on a host of similar measures at both the state and federal level that have stalled so far, and has quietly become the go-to brain trust for Democratic lawmakers and state activists, though it has drawn criticism elsewhere. Proposition 40 represents the closest they have come to seeing a wealth-tax proposal they helped craft become law. The race has become one of the costliest ballot fights in California’s history and has exposed deep divisions among Democrats; if it becomes law, it would be the first U.S. wealth tax in the modern era.
Proposition 40 calls for a one-time, 5% tax on the net worth of each California billionaire who was a state resident on Jan. 1, 2026. Supporters estimate it could raise more than $100 billion to cover shortfalls wrought by Trump’s tax law. They argue few billionaires would leave the state over a one-time tax whose toll they could quickly erase through investment and business gains, and that California will keep minting new billionaires notwithstanding the tax. Detractors characterize Proposition 40 as an asset grab that will drive innovators from the state and imperil California’s economy long term. The one-time nature of the proposed tax won’t limit the fallout, they say, given worries that similar taxes will follow.
Animating the quartet’s body of work together is the idea that the taxation system is poorly adapted to the way that today’s top sliver of Americans accumulate wealth, contributing to soaring inequality. While the tax system is fairly effective at collecting revenue from wage earners, it allows massive wealth to amass outside the income tax system. All four broadly believe in wealth taxes as a means to help address inequality, though they don’t all necessarily identify as liberal. Shanske, citing his belief in markets and efficiency, said he would have been considered fiscally conservative at another time in American history.
The most prominent of the four, Saez has built his career studying wealth and income inequality, taxation and redistribution, and advised Sen. Elizabeth Warren (D., Mass.) on her national wealth tax proposal during the 2020 presidential campaign. At a recent debate at the University of Southern California, Saez, who describes himself as politically liberal, called Proposition 40 “a way of restoring tax justice all the way to the top, you know, by finally making the billionaire class contribute according to their gain.”
The professors accordingly have aimed the tax at net worth, not at income. Net worth includes unrealized gains like much of the value of Alphabet stock that Sergey Brin, a major opponent of Proposition 40, has been holding for years during the artificial intelligence boom. Gamage said taxing the very wealthy is like trying to capture eels swimming in a basket full of holes. “The eels are going to squirm out; you need multiple baskets where the holes don’t overlap,” he said. In a wealth tax, “the holes mostly don’t overlap with known holes in income tax and business taxes.”
The group first started working together in 2020 after seeing the idea of a wealth tax catch the national imagination. Saez, Gamage and economist Gabriel Zucman, of the Paris School of Economics and UC Berkeley, had advised on Warren’s wealth tax proposal during that year’s presidential campaign. Its appeal at the time and the idea that a wealth tax could be applied only to the ultra wealthy were game-changers, Gamage said. Around 2020, a California teachers union and then-Calif. Assemblyman Rob Bonta came calling on Saez and Gamage to design a wealth tax for California. Gamage looped in Galle and Shanske; over a series of video meetings, the four professors worked on what eventually became AB 2088, a bill introduced in August 2020 that would have implemented a 0.4% annual tax on net worth above $30 million. The bill died in committee. The office of Bonta, now California’s attorney general, didn’t respond to an inquiry about his position on Proposition 40.
Over the next six years, the group in varying configurations advised on or helped draft other state-level wealth-tax proposals, including another in California, and has advised on several federal efforts at a wealth tax, too, though a potential constitutional obstacle looms. Saez handles economic analyses for proposals that look like they have political potential; the law professors advise on technical issues or can help draft bill language. “I view it as six years in the making,” Galle said.
Democratic Virginia state Rep. Emilie Kornheiser, who consulted with several of the group on technical matters while drafting a wealth tax bill several years ago, described them as a counterweight to the right-leaning tax groups and lobbyists who regularly connect with state legislators through sponsorship of events like meetings of the National Conference of State Legislatures. The professors have far fewer resources to make their case, she said. “At the end of the day, they are nerdy academics,” Kornheiser said, describing them as consultative and practical. An NCSL spokesman said the organization is bipartisan.
The healthcare union Service Employees International Union-United Healthcare Workers reached out last summer, after Trump had signed his tax bill into law, to see if there was an efficient way to raise significant revenue to plug the resulting healthcare funding gap in California. The One Big Beautiful Bill Act will cut federal healthcare spending by more than $1 trillion nationally over a decade, mostly from Medicaid. By then, the professors had digested several lessons. One was that it was far more feasible for California’s Franchise Tax Board to audit a smaller universe of people than 10,000 or 20,000 people, meaning a high wealth threshold would make administrative sense; Proposition 40’s backers estimate it will affect at least 200 to 300 people. Another was the need for a deferral mechanism, or some way a truly illiquid billionaire could defer paying a wealth tax until he or she had liquidity, to avoid forced sales of assets. The mechanism they developed involves what is essentially a contractual promise with California’s Franchise Tax Board for illiquid billionaires to pay the tax when they become liquid, even if they have since left the state.
The union gave the group 90 days to come up with a solution. It polled several versions of the wealth tax they designed, tweaked the parameters, looking for what resonated. The high wealth threshold and the deferral mechanism both show up in Proposition 40.
Six Nobel Prize-winning economists recently signed an open letter in support of the measure. Some progressive tax scholars say the most effective such tax would occur at the federal level. “Nothing is perfect,” Shanske said. While there may be hiccups if it passes, he said, he thinks the tax will work as designed.
Joshua Rauh, a professor at Stanford’s business school, has said with a co-author that the quartet’s estimate of how much revenue the tax would generate severely underestimates the amount of billionaire flight and future loss of income-tax revenue, and has written the tax likely would reduce California’s overall revenue. The dueling estimates and differing methodologies have sparked some acrimony; Gamage on X recently described Rauh’s work as “slop.” Rauh wrote in an email to The Wall Street Journal: “He is free to use whatever epithets he wishes… Discerning readers can decide whether [ours] is a better approach.”
The professors now are living through what may well be the hardest part: bearing with the flood of pre-election advertisements the opposition is funding. They are getting glossy fliers touting “No” on Proposition 40, automated texts from California Gov. Gavin Newsom, who opposes the ballot measure, and repeat exposure to an advertisement portraying the billionaire tax as an “everyone tax.” Criticism has also come from investor and “All-In” podcast host Chamath Palihapitiya, who wrote on X earlier this year: “The Billionaire Tax is a new proposal written by four professors who don’t believe in the American dream,” and added, “Some of them aren’t even American…go figure” — presumably referring to Saez, who has both French and U.S. citizenship. The professors write rebuttals and give interviews, but also realize their strengths may not lie in swaying public opinion. “We’ve tried. We’re written all these things but they’re way too long,” Shanske said. “But also, if we did have a commercial, it would maybe just say go read the facts for yourselves.”