How Wealth Taxes Work and Why They Divide Economists, From California to Europe

Why this is in the news now

California voters will decide three competing ballot measures in November 2026. Proposition 40, placed on the ballot by the Service Employees International Union-United Healthcare Workers West, would impose a one-time 5% tax on the net worth of Californians worth more than $1 billion, according to the nonprofit California Budget & Policy Center and the voter guide published by CalMatters.

Proposition 42, funded by Google co-founder Sergey Brin and endorsed by Governor Gavin Newsom, would cancel Proposition 40 and permanently bar the state from taxing personal property in the future, including retirement accounts, pensions, 401(k)s, investments and art collections, CalMatters reported. A related measure, Proposition 41, also backed by Brin, would nullify Proposition 40 by imposing spending limits and audit requirements on any revenue it raised. Under California's ballot rules, if either Proposition 41 or 42 wins more votes than Proposition 40, the billionaire tax is void, CalMatters reported.

Newsom's position puts him at odds with the California Democratic Party, which has endorsed Proposition 40, CalMatters reported.

How a wealth tax actually works

A wealth tax is levied on a person's net worth — the value of assets such as stocks, real estate, business ownership stakes and art, minus debts — rather than on income or on a single transaction such as a sale or inheritance, according to a Brookings Institution analysis. Most proposals apply only above a high threshold, so the vast majority of taxpayers are exempt.

Proposition 40 is a one-time levy rather than an annual one: it would apply only to Californians whose net worth exceeded $1 billion on January 1, 2026 — about 200 people, according to CalMatters' voter guide, or roughly 250, according to the California Budget & Policy Center — with the rate phasing in gradually for people just above the threshold. By contrast, federal proposals such as Senator Elizabeth Warren's Ultra-Millionaire Tax Act would impose an annual 2% tax on net worth above $50 million plus an additional percentage point on billionaires' wealth, repeated every year, according to the Peterson Institute for International Economics.

What backers say it would raise — and the disputes over that number

Revenue estimates for Proposition 40 vary widely depending on who produces them. The measure's authors project roughly $100 billion over five years, assuming some wealth shifts out of reach through avoidance; California's nonpartisan Legislative Analyst's Office projects tens of billions of dollars in near-term revenue; and the Hoover Institution, a research center often described as conservative-leaning, estimates about $40 billion initially, according to the California Budget & Policy Center. Under Proposition 40, 90% of collected revenue would go to health care, mainly Medi-Cal, and 10% to K-14 education and food assistance programs, with annual spending caps of $22.5 billion and $2.5 billion respectively.

The same split in estimates appears at the federal level. Economists Emmanuel Saez and Gabriel Zucman of the University of California, Berkeley — who helped design Senator Warren's plan — projected it would raise about $250 billion a year, or 1.2% of GDP, according to the Peterson Institute for International Economics. Former Treasury Secretary Lawrence Summers and economist N. Gregory Mankiw countered that the tax would raise little revenue, distort investment behavior and fail to curb billionaires' power, according to the same analysis. Saez and Zucman responded that most top-0.1% wealth sits in stocks, bonds and real estate — assets with observable market prices that are harder to hide, according to the Peterson Institute for International Economics.

Why economists remain split

• Valuation: publicly traded stock has a clear daily price, but privately held businesses, art and closely held companies do not, making annual reassessment costly and litigation-prone, Brookings noted.
• Liquidity: a person whose wealth is tied up in an illiquid asset such as a family business or a home may lack the cash to pay a wealth-based bill, an issue the Brookings Institution flagged in reviewing wealth-tax design problems abroad.
• Capital flight: wealthy residents can and sometimes do relocate to lower-tax jurisdictions in response, a pattern documented in Norway, Sweden and Spain by the Tax Foundation.
• Revenue potential: because wealth is highly concentrated, even a low single-digit rate on a narrow group of the richest people can raise large sums, proponents including Saez and Zucman argue, a case echoed in Proposition 40's design targeting only roughly 200 to 250 billionaires.

The European experience

Wealth taxes were once common across wealthy democracies but have been rolled back sharply. Only four OECD countries — Colombia, Norway, Spain and Switzerland — still levy a general net wealth tax, according to the Tax Foundation. Austria repealed its version in 1994, Germany in 1997 after its constitutional court ruled the tax unconstitutional for treating asset classes unequally, Sweden in 2007, and France in 2018, the Tax Foundation reported. The Netherlands' Supreme Court separately ruled in 2021 that a related wealth-based levy violated property-rights protections.

The Tax Foundation reported that Norway saw departures of wealthy residents after raising its wealth-tax rate, prompting the government to tighten exit taxes, while Swedish banks opened Zurich offices to serve clients who had relocated. In the U.S. state of Washington, a proposed wealth tax was estimated to lose nearly half its projected revenue after a single billionaire moved to Florida, according to the same analysis. Spain's combination of wealth, income and capital-gains taxes has in some cases produced very high effective tax burdens, the Tax Foundation reported.

What is still unresolved

Whether a U.S. state-level wealth tax would survive legal challenge is untested; the California Budget & Policy Center noted uncertain court fights over retroactive residency rules under Proposition 40. Research cited in the same analysis found only minor effects on migration tied to differences in state income-tax rates, a point proponents use to push back on capital-flight warnings, though that research addressed income tax rather than a one-time wealth levy specifically.