A newly released working paper from the National Bureau of Economic Research (NBER) casts a long shadow over the fiscal ambitions of the 2026 California Billionaire Tax Act, suggesting that the state’s bold attempt to tax extreme wealth may result in a significant net loss for the public treasury. The paper, identified as Working Paper 35899 and published in October 2026, provides a rigorous economic audit of the one-time 5 percent levy imposed on the worldwide net worth of individuals exceeding $1 billion. While proponents of the legislation had initially projected that the tax would generate approximately $100 billion in revenue, this new analysis suggests that the reality will be far more modest—and potentially catastrophic for the state’s long-term tax base.
The study, which utilizes a combination of Forbes Billionaire List data, real estate disclosures, and documented reports of billionaire migration, concludes that the Act is likely to collect only about $30 billion. Even within its most optimistic modeling, the research estimates a revenue ceiling of $36 billion, barely reaching one-third of the initial government projections. This substantial shortfall is driven by a combination of taxpayer flight, behavioral responses, and the unintended erosion of other critical state tax streams, most notably personal income tax collections.
The core of the issue lies in the mobility of the ultra-wealthy. According to the researchers, the legislative effort to capture a "one-time" windfall has triggered a preemptive exodus of high-net-worth individuals from California. By tracking public announcements and residential property holdings, the authors estimate that nearly 30 percent of the potential wealth tax base has already departed the state. This migration is not merely a hypothetical concern but a documented trend that has manifested in the months following the Act’s introduction. When this departure rate is coupled with a "litigation-survival discount"—a factor accounting for the high probability that such a tax will face prolonged and potentially successful legal challenges—the projected revenue from the wealth tax shrinks considerably.
The NBER researchers emphasize that the fiscal impact of the Act cannot be viewed in a vacuum. To understand the true economic health of the state, one must consider the secondary effects of these departures on existing revenue streams. California’s billionaires are currently significant contributors to the state’s coffers, with the study estimating that they provide between $3.3 billion and $5.8 billion annually in state income taxes. When these individuals relocate to jurisdictions without a wealth tax, the state does not simply lose the one-time 5 percent levy; it loses the recurring annual income tax payments that these residents would have otherwise provided for years to come.
When calculating the net present value (NPV) of the legislation, the researchers found that the permanent loss of these income tax collections dwarfs the immediate gains from the wealth tax. The study places the net present value of the California Billionaire Tax Act at negative $38.9 billion. This calculation suggests that, from a strictly fiscal perspective, the state is effectively paying a high price to implement a policy that results in a net drain on its resources.
To ensure the robustness of these findings, the authors performed extensive sensitivity analysis, running 100,000 simulated revenue and discount rate combinations. The results were stark: in 85 percent of all plausible scenarios, the state ends up in a worse financial position than it would have been had the tax never been enacted. The data indicates that the behavioral elasticity of billionaires—their propensity to move or restructure assets in response to taxation—is high enough to render the policy self-defeating.
This research arrives at a critical juncture for state policymakers who have increasingly looked toward wealth-based levies as a solution to budget deficits and social funding requirements. The discrepancy between the findings of this paper and the projections made by Galle et al. in 2025 highlights the difficulty of estimating tax revenue when the taxpayer base possesses the resources to relocate or engage in sophisticated tax planning. While the 2025 projections were instrumental in providing the political momentum necessary to pass the Act, the empirical data gathered in the months following its implementation suggests that those forecasts failed to adequately account for the fluidity of global wealth.
The validation provided by the wealth tax base elasticity literature further reinforces the researchers’ skepticism regarding the Act’s revenue potential. Economists have long debated the responsiveness of top-tier taxpayers to changes in marginal tax rates and capital levies. In the case of California’s billionaire class, the high concentration of wealth and the relative ease of establishing residency elsewhere create a unique environment where the "Laffer curve" effects—where higher tax rates lead to lower total revenue due to behavioral changes—are particularly pronounced.
Beyond the raw figures, the report touches upon the administrative and legal hurdles that the state must overcome. The "litigation-survival discount" applied in the research reflects the reality that the 2026 Act is currently facing significant legal scrutiny. Challenges regarding the constitutionality of taxing worldwide assets for individuals residing in a specific state are likely to reach the higher courts, creating uncertainty for both the state and the taxpayers. This uncertainty itself acts as a catalyst for departure; billionaires, faced with the prospect of paying a 5 percent tax on their total net worth, are incentivized to relocate before the courts can issue a final ruling, thereby locking in their assets outside of California’s reach.
The study serves as a cautionary tale regarding the limitations of state-level wealth taxation. Because wealth is mobile and capital is global, the ability of a single sub-national entity to capture a significant percentage of a billionaire’s net worth is inherently constrained by the competitive tax environment of neighboring states and nations. When the cost of taxation exceeds the benefit of remaining in a particular jurisdiction, the wealth leaves, and the state is left with a smaller tax base than it possessed before the policy was implemented.
The findings presented in the NBER working paper provide a data-driven rebuttal to the assumption that extreme wealth can be tapped without consequence. By illustrating the trade-off between a one-time wealth tax and the erosion of a recurring income tax base, the authors provide a comprehensive view of the fiscal landscape. As the 2026 California Billionaire Tax Act remains in effect, the state faces a challenging road ahead. The data suggests that the policy, while intended to be a tool for wealth redistribution and revenue enhancement, has instead become a driver of capital flight and a source of long-term fiscal instability.
For policymakers and taxpayers alike, the implications of this study are profound. It suggests that fiscal sustainability in the age of globalized wealth requires a more nuanced approach than simply imposing higher rates on the most visible targets. Whether California will choose to adjust its approach or continue to defend the Act in the face of these projections remains to be seen, but the economic evidence gathered to date offers a clear warning: the cost of taxing the billionaires may, in the end, be a price the state cannot afford to pay.
