Weekly Whopper: “Prop 40 Won’t Impact California’s Economy”

SACRAMENTO, CA — This week, the No on 40 coalition is fact-checking the false and misleading claim that Proposition 40 won’t impact California’s economy or lead those subject to the tax to depart the state. The reality is that Proposition 40 has eroded the state’s tax base by more than half a trillion dollars, is already damaging the economy and budget, will not collect the revenue promised, makes California less competitive, and jeopardizes our innovation and entrepreneurship edge.

KEY QUESTIONS: What are the economic consequences of California’s top innovators, investors, and entrepreneurs departing, as has been widely reported? How will the state attract and retain the world’s most successful businesses if Prop. 40 passes?

THE CLAIM: Proposition 40 won’t impact California’s economy.

THE FACTS:

Prop. 40 will not collect the revenue promised. According to Stanford University research: “the one-time levy would collect approximately $40 billion in wealth tax revenue, less than half of the roughly $100 billion projected by proponents.”

Wealthy Californians — the foundation of the state’s tax base — are fleeing. At least six billionaires departed California before January 1, 2026 to avoid this tax. The top 1% of California earners contribute 40-50% of the state’s income tax revenue. 

Major damage is already being done to California’s economy. The departure of these individuals alone is estimated to remove $536 billion, or nearly 30% of aggregate billionaire wealth, from the tax base – with ripple effects on the budget, jobs, investment, and innovation.

This will blow a massive hole in the state budget in years to come. Stanford University research finds that “California’s proposed one-time wealth tax on billionaires would leave the state worse off by an estimated $25 billion once lost income tax revenue is considered.”  

The tax makes California less competitive. A wealth tax makes California less competitive, discouraging entrepreneurs, start-up founders, investors, and other employers from building and growing business here — putting future jobs and economic growth at risk. 

It jeopardizes the state’s innovation edge. Andersen Institute for Finance and Economics research finds that other states and innovation clusters have already gained ground on California in recent years and further relocation or expansion in other markets driven by this tax could erode the state’s competitiveness and innovation economy.

It will depress employment in sectors key to California’s competitiveness. Research shows that this tax would lower the level of employment in California’s high-tech sector — with spillover effects depressing employment in other sectors as well.

Other countries have abandoned similar wealth taxes because of economic consequences. In 1990, 12 industrialized countries levied a wealth tax. By 2025, nine countries had repealed theirs because of capital flight, adverse effects on entrepreneurship and innovation, administrative costs, legal problems, and disappointing revenue. According to MIT economists, capital flight and avoidance remain a problem in countries that have maintained their wealth tax.

WHAT THEY’RE SAYING:

California Governor Gavin Newsom: “You may not be able to pick up and move to Texas or Florida to shelter your income from taxation, but I promise you that billionaires can, and do. Wealth is movable, and it shops for the state with the lowest taxes.” (Jun. 26, 2026)

California Chamber of Commerce: “CalChamber and a strong coalition of local chambers of commerce believe the effort to impose an unprecedented wealth tax is not only misguided but creates a dangerous precedent that will cause more problems than it would ever solve. Our Board of Directors voted to oppose the initiative last December, citing the risky nature of taxing unrealized gains on shares held by founders of Silicon Valley simply to obtain a one-time infusion of tax revenue that ignores the state’s systemic budget problems.” (Jun. 16, 2026)

Bay Area Council President and CEO Libby Schaaf: “We all want a California that is more affordable, more equitable, and more prosperous. But we cannot tax our way to those goals by discouraging the investment and innovation that fuel economic growth. The path forward is creating more housing, improving education, and expanding economic opportunity—not imposing a wealth tax that risks shrinking the resources available to support those priorities.” (Jun. 18, 2026)

Entrepreneur Mark Cuban: “If this passes…you can bet if I’m investing in a multi billion dollar startup, I’m asking them to move from California first. IMO, if this passes, only idiot startup founders stay in Cali. I’ve done it before and will do it again. Dallas. Pittsburgh. Indiana. I will make NOT being in California a prerequisite for an investment.” (Aug. 15, 2026)

San Jose Mayor Matt Mahan: “We need a rising economic tide to lift all boats, not a political plan that will sink California’s innovation economy. I realize no one has sympathy for billionaires. But the truth is — they don’t have to, and many won’t, stay here if this tax is implemented. Each year, 40-50% of the state’s income tax comes from the top 1% percent of earners, who are the most mobile members of our society. Driving billionaires out of state might feel good in the short run but working people (as is almost always the case) will pick up the tab for this political ploy. The people who lose in the long run are California families who will be asked to foot more of the bill for government services and infrastructure.” (Jan. 6, 2026) 

Silicon Valley Leadership Group CEO Ahmad Thomas: “[Prop. 40] would risk dependable, recurring revenue for a temporary infusion of money. Once that money is spent, California could be left with a smaller tax base to support essential services year after year. This is not the way to spur business dynamism which supports innovation and job creation. The consequences could extend beyond tax revenues. Founders and CEOs help determine where companies grow, workers are hired and investments are made. California benefits when those leaders and their companies remain rooted and invested in the success of our state.” (Jul. 29, 2026)

UC Berkeley Economist Enrico Moretti: “A growing body of economic research suggests that high taxes can make states less attractive to entrepreneurs. If California drives away some of the people who create companies and jobs, ordinary Californians will ultimately bear much of the cost in the form of fewer employment opportunities. The chief beneficiaries will be low-tax states such as Texas and Florida, which stand ready to absorb the jobs that California drives away.” (Sep. 16, 2026)

Stanford University Economist Joshua Rauh: “A quick look at the math underpinning the proposal, which would tax the accumulated assets of ultrawealthy Californians, shows that the first net wealth tax in modern U.S. history would provide the state little and endanger its economic core…When corporate founders leave, hiring decisions tend to follow. Silicon Valley and other drivers of the state’s prosperity are not guaranteed to remain the unique and vibrant economic powerhouses they have been.” (Sep. 5, 2026)

California Tax Foundation Fellow Jared Walczak: “California’s economy is heavily reliant on outliers — big risks that yield even bigger rewards. A wealth tax aimed at yesterday’s outliers changes the expected return for those taking risks tomorrow. Adopting a wealth tax in 2026 is a good way to ensure that some of those future innovators get their big break in other states.” (Sep. 3, 2026)

OTHER OPPOSITION FROM BUSINESS LEADERS:

KEY RESOURCES:

• Stanford University – Hoover Institution: California’s Proposed Billionaire Tax Will Cost the State an Estimated $25 Billion, Hoover Study Finds (Mar. 5, 2026)
• California Tax Foundation: Ongoing State Tax Revenue Implications of the 2026 California Billionaire Tax Act (Apr. 21, 2026)
• Andersen Institute for Finance and Economics: Why the Billionaire Wealth Tax Is Not the Right Answer for California’s Fiscal Problems (Jun. 10, 2026)
• MIT Golub Center for Finance and Policy: The Proposed California Billionaire Wealth Tax Produces Inequities and Adverse Incentives (Aug. 20, 2026)
• Independent Institute: Flawed Research and Real Economic Damage – Examining California’s Proposed Billionaire Wealth Tax (Sep. 14, 2026)

Last week, the No on 40 coalition fact-checked the claim that Proposition 40 will address California’s healthcare needs, noting that the measure relies on an unstable revenue source, has no safeguards to ensure funds are actually directed to patient care or lower costs, and will ultimately harm the healthcare workforce and safety net it purports to protect.