SACRAMENTO, CA — The No on 40 coalition today highlighted damning new findings from Stanford University and UNC Tax Center researchers showing Proposition 40 will deal an even bigger blow to California’s revenue base than originally projected — costing the state nearly $40 billion — and that an overwhelming majority of tax experts — seven in ten surveyed — oppose the measure.
According to updated Stanford University research, Proposition 40 will cost the state $38.9 billion in permanently lost income tax collections as entrepreneurs, investors, and innovators depart, damaging California’s economy and jeopardizing core services, like schools, healthcare, and public safety.
“These findings suggest that the Billionaire Tax Act will not fulfill the primary functions for which it was designed,” Stanford University economists Joshua D. Rauh and Benjamin Jaros write. “Although the Act was designed to raise revenue, behavioral response prior to voting has eroded most of the projected tax base.”
This research, which updates figures first released in March, is detailed in a working paper titled, “The Net Present Value of the California Billionaire Tax Act,” published by the National Bureau of Economic Research. The study also estimates that even before accounting for reductions in other tax bases such as the income tax, Proposition 40 will collect less than a third of the $100 billion projected. This range accounts for the publicly confirmed taxpayer migration that has already eliminated nearly 30 percent of the measure’s tax base.
Separately, survey findings published by University of North Carolina professor and UNC Tax Center research director Jeff Hoopes reveal that professionals who specialize in taxation, including economists and accountants, oppose Proposition 40 by wide margins. Of 105 respondents, 69.5% reported that they would vote against Proposition 40.
In comments that accompanied the survey, these tax experts raised concerns that this measure will drive wealthy taxpayers out of state, reduce income tax revenue, fail to address the ongoing problems it intends to solve, and create valuation, liquidity, enforcement, and compliance challenges.
This new research follows other studies from renowned economists, including professors with the MIT Sloan School of Management and University of Chicago Booth School of Business, who found that rather than fund the state’s massive budgetary commitments, Proposition 40 may drive away its largest taxpayers and struggle to accurately value and tax assets.
For more information on the damage Proposition 40 will do to the state’s economy, read the coalition’s detailed fact-check here.