The Net Present Value of the Billionaire Tax Act: An Assessment of the Fiscal Effects of California's Proposed Wealth Tax

• State & Local
• California

This paper evaluates the fiscal impact of California's proposed "Billionaire Tax Act." While advocates for the tax claim that it would raise $100 billion in new revenue, more detailed analysis by Hoover Institution Senior Fellow Joshua Rauh and Research Fellow Ben Jaros suggests a very different result.

• Nearly 30% of the Billionaire Tax Act's tax base has already departed California, even before the initiative has qualified for the ballot. Rauh and Jaros project that the best-case scenario (ignoring lost income taxes) is that the tax will collect $40 billion over 5 years, not $100 billion.
• More importantly, the permanent loss of income taxes from the departing residents indicates a high likelihood that net effect of the Billionaire Tax Act will be negative. Rauh and Jaros estimate that the net present value of the tax will be -$24.7 billion.
• Moreover, because the Billionaire Tax Act is a constitutional amendment that permanently removes the California's existing constitutional restriction on intangible property taxes, it's highly likely that future legislation and ballot initiatives will propose creating additional wealth taxes. This is not a one-time tax.

California residents and policymakers already understand that the Billionaire Tax Act represents a sea change in tax policy, but they probably don't realize the depth to which this proposal will affect the state's economy. This paper provides a first glimpse of that future.

See this Liberty Lens essay for a summary of the paper's findings.