Pevita Pearce
The genesis of California’s Proposition 40, a one-time wealth tax targeting the state’s wealthiest residents, can be traced back to a virtual meeting. Dave Regan, the formidable president of the healthcare union SEIU-United Healthcare Workers West, sought a substantial funding stream – an ambitious $100 billion – to counteract projected federal cuts to healthcare services. His proposition: a novel, one-time wealth tax levied exclusively on billionaires. This idea found fertile ground with a quartet of academics, spearheaded by UC Berkeley economist Emmanuel Saez, a leading figure in the study of economic inequality and taxation.
Over a year later, this ambitious proposal has materialized as Proposition 40, a ballot measure demanding a significant portion of the discourse surrounding California’s fiscal and economic future. While Regan, a figure less known to the public, has receded from the campaign spotlight following allegations of workplace misconduct, which he has vehemently denied, the academic architects of the tax have stepped to the forefront. Saez, alongside University of Missouri law professor David Gamage, UC Berkeley law professor Brian Galle, and UC Davis law professor Darien Shanske, have become the vocal champions of Proposition 40, navigating a demanding schedule of debates and editorial board meetings amidst their academic responsibilities.
Facing a formidable opposition, outspending their campaign by a ratio exceeding five-to-one, Saez contends that Proposition 40’s most potent argument is its inherent simplicity: it is time to tax the immense wealth accumulated by the ultra-rich. Saez’s extensive research illuminates a dramatic surge in California billionaires’ fortunes, noting that their wealth has multiplied an astonishing 25 times since 1982. This data point resonates within progressive circles, where billionaires are frequently depicted as powerful oligarchs whose vast economic influence is seen as undermining democratic institutions. "They hate the fact that the thing is called a billionaire tax because already, that gives us a tremendous advantage—if people just understand that simple point," Saez remarked in a recent interview, highlighting the inherent populist appeal of the measure.
The debate has, at times, devolved into personal attacks. Professor David Gamage recounted an instance where a critic allegedly created a website featuring the academics’ photographs, contact details, and social media profiles, leading to an onslaught of hostile messages. The website was subsequently removed.
Even opponents of the wealth tax acknowledge its inherent popular appeal. However, they characterize Saez and his collaborators’ initiative as a perilous academic experiment, potentially detrimental to California’s economic vitality by driving away jobs and tax revenue. The "No on 40" campaign has launched a website, whowroteprop40.org, specifically designed to highlight instances where Saez and fellow economist Gabriel Zucman have referred to the tax as an "experiment," aiming to sow doubt about its feasibility and long-term consequences.
The opposition to Proposition 40 is diverse and influential, encompassing Governor Gavin Newsom, prominent healthcare organizations such as Planned Parenthood Affiliates of California and the California Medical Association, several labor groups, and high-profile billionaires like Google co-founder Sergey Brin.
The concept of a wealth tax has also divided the academic community. Six Nobel laureates in economics have publicly endorsed the measure, framing it in the Financial Times as a "turning point in the battle between democracy and oligarchy." Conversely, Enrico Moretti, an economist at UC Berkeley and Saez’s neighbor in Evans Hall, while sharing Saez’s goal of addressing economic inequality, expresses reservations about the efficacy of a state-level wealth tax. Moretti argues that such a measure could inadvertently harm California’s economy. "These billionaires are not going anywhere; they’re just going to a different state, and my concern is that they’re bringing with themselves a lot of the jobs that could have been in California," Moretti stated, adding that it would "strengthen the economy of red states and weaken the economy of the most progressive blue state."
A Long Road to the Ballot: The Intellectual and Political Journey of a Wealth Tax
The intellectual foundations of Proposition 40 were laid years before it appeared on the California ballot. Emmanuel Saez, a native of the Basque region in Spain, demonstrated an early aptitude for mathematics. His academic trajectory led him through prestigious institutions, including Paris’s École Normale Supérieure for his undergraduate studies, the Massachusetts Institute of Technology for his Ph.D., and a teaching position at Harvard. Throughout his career, Saez has focused on the intricate relationship between taxation and the widening global wealth gap. His significant contributions were recognized in 2009 when he received the John Bates Clark Medal, one of the highest honors in economics for scholars under 40.
The aftermath of the 2008 Great Recession saw a surge in public discourse surrounding economic inequality, amplified by movements like Occupy Wall Street and the presidential campaigns of figures like Bernie Sanders. During this period, Saez and his academic colleagues engaged in extensive policy discussions through research papers and conferences, exploring potential solutions.
However, for a considerable portion of their careers, a wealth tax was widely considered a political non-starter. David Gamage recalls publishing a paper on the merits of a wealth tax in 2014, a time when the idea was largely out of favor. Several European nations, including France, Germany, Denmark, Austria, and Luxembourg, had previously implemented and subsequently abandoned wealth taxes over the preceding decades.
Gamage’s skepticism regarding the political viability of a wealth tax persisted even when Senator Elizabeth Warren, D-Mass., sought his and Saez’s expertise in crafting her wealth tax proposal for her 2020 presidential campaign. "My perspective, based on the polling we had at the time, was that there was no realistic prospect for a wealth tax in the United States," Gamage admitted. "I didn’t see it going anywhere."
Senator Warren’s strategic innovation lay in reframing the tax to target only the ultra-wealthy, rather than a broader segment of the affluent. Her proposal for a 2% tax on families with net worth exceeding $50 million and a 5% tax on billionaires resonated strongly with the public and garnered significant media attention. Gamage described this as a "sea of change" for an idea previously confined to niche academic discussions.
While Warren’s presidential bid concluded, her influence persisted. President Joe Biden later consulted with Saez and his colleagues on a proposal to tax families with assets exceeding $100 million. However, this initiative was ultimately shelved due to a lack of sufficient support in the U.S. Senate.
In California, Gamage and his allies collaborated with state lawmakers to introduce wealth tax legislation. In 2020, then-Assemblymember Rob Bonta proposed an annual 0.4% wealth tax on Californians with a net worth over $30 million. Bonta’s bill did not advance, nor did a subsequent proposal from Assemblymember Alex Lee, D-San Jose, targeting billionaires, who took up the cause after Bonta was elected Attorney General. Bonta has not publicly commented on Proposition 40, citing his office’s role in providing neutral ballot measure titles and summaries.
Gamage had largely resigned himself to the idea that a wealth tax would not materialize during Gavin Newsom’s governorship. However, a call from Dave Regan and SEIU-United Healthcare Workers West in the late summer of the previous year presented a new opportunity. The suggestion of a ballot measure, which could bypass a gubernatorial veto, reignited the academics’ pursuit of their policy objective.
The drafting process for Proposition 40 was a collaborative effort. Gamage was responsible for articulating the legal language, Saez provided the economic modeling, Gamage served as the team’s expert on the state constitution, and Brian Galle was brought in to address the complexities of how wealthy individuals might attempt to shield their assets.
A novel tactic was incorporated into the tax’s design. Announced in November, the tax was stipulated to apply to all billionaires who were residents of California as of January 1, 2026. This provision created a narrow window of just over a month for billionaires to not only relocate their residences but also to demonstrate to tax authorities that they had severed substantial professional ties to the state. The collaboration among the academics, conducted entirely remotely, only saw them convene in person, or as Darien Shanske, the UC Davis law professor, put it, "in three dimensions," in the summer of the current year.
Shanske maintains that the group’s approach was guided by data and evidence rather than ideological convictions. He views Proposition 40 as a modest tax on billionaires that would not negatively impact "meaningful economic activity." "It’s a very efficient tax," Shanske asserted. "It’s way more efficient than taking millions of health insurance away from millions of people. As it also happens, it’s morally a slam dunk because you’re asking the people who have the most to help provide the most basic human services to their fellow citizens."
Addressing Criticisms and Unforeseen Consequences
Despite the proponents’ arguments, Proposition 40 faces a barrage of criticisms from its opponents, who contend that the proponents’ analysis significantly underestimates the potential pitfalls. Concerns are widespread, including the possibility that the tax might not remain a one-time measure, that it could eventually be expanded to include a broader segment of the population, that it may generate less revenue than projected, prove difficult to enforce, become entangled in protracted legal battles, or that the generated revenue could be mismanaged by the Legislature.
The architects of Proposition 40 have responses to many of these criticisms, though they have not swayed their detractors. They acknowledge that future wealth tax proposals, potentially permanent ones, could emerge through subsequent ballot measures or legislative action requiring supermajorities. Gamage and his colleagues stand by their revenue projections and argue that the measure’s statute explicitly prevents its application to individuals beyond the billionaire class. Furthermore, the proponents assert that Proposition 40 includes provisions to limit legislative discretion in spending the revenue and establishes expedited timelines for hearing legal challenges.
A significant point of contention is the practical challenge of appraising the assets of billionaires. Kirk Stark, a tax law professor at UCLA who describes himself as "sympathetic, but skeptical" of the measure, characterized the valuation process as a "totally new and enormous undertaking" for tax authorities.
However, the most prevalent and deeply held concern among critics is the potential for the tax to drive away billionaires, whose tax contributions are vital for funding state services. A study conducted by Stanford economists affiliated with the Hoover Institution, a conservative think tank, estimated that the tax could ultimately cost California $25 billion in the long run due to capital flight. "Our research shows that this wealth tax experiment would be a fiscal and economic disaster," stated Joshua Rauh, a finance professor at Stanford’s Graduate School of Business, in a recent mailer from the "No on 40" campaign.
The Hoover Institution’s modeling is a particular point of contention for the Proposition 40 proponents. Gamage dismissed it as "bad faith," while Shanske labeled it "outlandish" due to its assumptions regarding sustained billionaire migration. Saez concedes that there is room for honest disagreement on the precise number of billionaires who might leave California. However, he maintains that the overall economic impact would be far less severe than critics suggest, citing his own estimates indicating that billionaires collectively contribute less than 3% of California’s income tax revenue between 2023 and 2025.
While the architects of Proposition 40 acknowledge that a national wealth tax would be preferable to a state-level initiative, they recognize the immense political hurdles and potential need for a constitutional amendment at the federal level. They view a state-level tax, like California’s Proposition 40, as a potential "demonstration project" for a federal effort. This historical parallel is drawn to Wisconsin’s 1911 income tax, which, enacted amidst the Gilded Age’s stark inequalities, is seen as having paved the way for a federal income tax two years later.
The proponents of Proposition 40, though weary from extensive campaigning, remain energized by their conviction in its necessity. Saez, a wiry 53-year-old Frenchman who unwinds by surfing near San Francisco, sees the measure as part of a larger struggle. He views the current landscape as a critical juncture in the contest between democratic principles and the ascendant power of oligarchies. "At some point, there’s going to be a clash," Saez declared. "If Proposition 40 passes, that’s a historical turning point." He concluded with a resolute statement: "It’s the best shot we’ve ever had."
This article was originally published by The Sacramento Bee and distributed by Tribune Content Agency LLC.
