Nobel-winning economists tout California's billionaire tax

Bloomberg News

California's billionaire tax measure — designed to replace funds lost from the Trump administration's cuts to Medicaid — is lining up supporters as November's mid-term election draws near.

The cuts to Medicaid proposed in the One Big Beautiful Bill Act would take effect next year, but many states are scrambling to figure out how to replace lost federal funding to the healthcare program, which provides medical coverage for the nation's poor. Medicaid costs have typically been shared by the federal government and the states.

One answer in California comes from Proposition 40, a controversial measure that would raise an estimated $100 billion to offset federal healthcare and Medicaid spending cuts by imposing a one-time tax of up to 5% on taxpayers with assets over $1 billion

The effort — initially launched by healthcare unions — has received support from many organizations but also has many opponents, including Keely Bosler, former head of California's Department of Finance.

The measure got a lift recently when endorsed by six Nobel Prize-winning economists.

The signatories include Joseph Stiglitz, former chief economist of the World Bank; Paul Krugman, a professor at the City University of New York and a journalist; and Massachusetts Institute of Technology faculty members Peter Diamond, Daron Acemoglu, Abhijeet Banerjee, and Esther Duflo.

In their support letter, the economists opine the nation's failure to tax billionaires' returns on capital through "a myriad of loopholes they have taken full advantage of — has allowed their wealth to compound, while ordinary Americans have paid higher taxes."

"Over the 2019-2025 period, the total amount of California income tax paid by billionaires amounted to only 1.6% of their $1.4 trillion wealth gain, much less than what ordinary Californians pay on their paychecks," according to the letter.

While some of the state's billionaires have threatened to leave the state if it passes, the letter notes Nvidia CEO Jensen Huang, who would be one of the main taxpayers, has said he would be "perfectly fine" with it.

Polling shows the controversial measure has an even chance of winning, but the Public Policy Institute of California revealed a mixed bag on the measure in findings from a statewide survey released Sept. 15.

Fifty-two percent of likely voters say they would vote yes on Proposition 40, according to PPIC.

The PPIC poll also showed that narrow majorities also support two separate initiatives that would nullify the billionaire wealth tax proposal if either receives more votes than Proposition 40. Fifty-one percent of likely voters say they would vote for Proposition 41, which would require the state auditor to review special tax proposals before they go to voters. Fifty-four percent support Proposition 42, which would ban new taxes on personal property.