Two economists say California's 1978 property-tax law costs more revenue than a billionaire tax would raise

California voters are days away from deciding whether to impose a one-time 5% tax on billionaires' wealth — but two economists say the state is looking in the wrong place. If California simply taxed property the way Texas does, they argue, it would generate more ongoing revenue than Proposition 40 ever could.

Owen Zidar of Princeton and Eric Zwick of the University of Chicago Booth School of Business, authors of the book The Everywhere Millionaire, made the case in a recent New York Times op-ed. Their target: Proposition 13, the 1978 ballot measure that capped property taxes at 1% of assessed value, limited annual increases to 2%, and allowed reassessments to market value only when a property is sold or substantially renovated.

The original sin underlying California's tax structure is Prop 13, the 1978 law that rewrote the rules of property ownership. Getting rid of it would be a more efficient and durable way to make the rich pay their fair share.— Owen Zidar and Eric Zwick, economists

Zidar and Zwick estimated that because home values have climbed far beyond the capped assessments, the average California homeowner faces an effective property-tax rate of only 0.8%, which produced $100 billion in statewide property-tax revenue in fiscal year 2025. Texas homeowners, by contrast, pay an average of 2%. If California matched that rate, the economists say, residential property-tax revenue would more than double, and home prices could ease by around 13%.

Proposition 40, the measure on the Nov. 3 ballot, calls for a one-time 5% tax on the total assets of anyone in the state worth more than $1 billion. The union backing the measure projects it would raise roughly $100 billion — but that figure covers the period from 2027 through 2031, assuming 10% avoidance, according to economists who helped draft it. Once administrative costs are deducted, 90% of what remains would fund health care, with the other 10% split between education and food assistance, according to TokenPost.

The contrast the economists draw is between a one-time levy on a few hundred people and a permanent, broadened tax base. Unlike Prop 40, which would raise money once for state programs, property taxes deliver recurring revenue to schools and local governments.

It is simply not possible to fund the state's needs by leaning on a few hundred people, as politically appealing as that may be. For California to tax wealth in a progressive fashion and meaningfully improve its fiscal position, it needs to broaden the aperture beyond billionaires to the hundreds of thousands of other very wealthy people who could easily afford to contribute more by paying a real estate tax that finally works.— Owen Zidar and Eric Zwick, economists

Prop 13 passed during a national tax revolt that preceded Ronald Reagan's election. After its passage, California shifted toward taxing income — including capital gains — to compensate for constrained property-tax revenue. At 13.3% at the top, California's marginal income-tax rate is the highest in the nation, giving the state the country's most progressive income-tax structure. Combined with federal rates, the total can exceed 50%. According to Fortune, the top 1% of earners supply as much as half of all state revenue, leaving government finances exposed to swings in stock market performance.

Critics of Prop 40 raise a separate concern: that the ultra-wealthy will simply leave. Writing in Project Syndicate, former White House economic adviser Laura Tyson and Lenny Mendonca, who once served as chief economic adviser to Governor Gavin Newsom, pointed out that six billionaires collectively responsible for roughly a quarter of Prop 40's projected revenues had relocated out of California before the measure's proposed effective date. The two also cautioned that Prop 40's reliance on an untested approach to taxing all assets would trigger, in their words, "a tidal wave of litigation, rendering the promised funding both speculative and unreliable."

Instead of a tax on billionaires, the U.S. needs to raise taxes on the capital income that feeds wealth. There are a variety of ways to do so: through higher corporate tax rates; through taxes on realized and unrealized capital gains; by closing the most egregious loopholes, like carried interest; and by increasing inheritance taxes.— Laura Tyson and Lenny Mendonca, former economic advisers

Zidar and Zwick's property-tax scenario is hypothetical — a Prop 13 repeal is not on the Nov. 3 ballot — and it comes with its own political obstacles. Many California homeowners, not just the wealthy, would face sharply higher tax bills if assessments reset to market value. Texas has seen its own voter backlash over property taxes, which are levied by local governments and remain a persistent complaint even in a state with no income tax.

A separate 2024 analysis cited by TokenPost placed California's effective rate on owner-occupied homes at 0.70% and Texas's at 1.40%, figures that differ from the 0.8% and 2% in Zidar and Zwick's comparison because the two studies use different measurement methods. The statewide $100 billion figure also includes commercial and other non-residential property, meaning it does not provide a residential-only baseline for the economists' doubling estimate.

According to Fortune, California's spending for the current fiscal year is projected at $540 billion. Against that backdrop, both Prop 40 and the property-tax debate reflect the same underlying tension: a state with a narrow, volatile tax base trying to fund an expansive budget — and a coming vote that will test how far voters are willing to go to change it.

Why it matters — California's Nov. 3 vote on a billionaire wealth tax is also a referendum on who bears the state's fiscal burden — and economists say the deeper structural question is a 48-year-old property-tax cap that shapes every Californian's housing costs and tax bill.

Sources differ on Effective property-tax rate in California: 0.8% (fortune.com (Zidar and Zwick estimate)) vs 0.70% (tokenpost.com (separate 2024 calculation, owner-occupied homes))

Sources differ on Effective property-tax rate in Texas: 2% (fortune.com (Zidar and Zwick estimate)) vs 1.40% (tokenpost.com (separate 2024 calculation, owner-occupied homes))

Sources differ on Prop 40 projected revenue: ~$100 billion over 2027–2031 (assuming 10% avoidance) (tokenpost.com (economists who helped draft the measure)) vs 'Tens of billions' over several years (tokenpost.com (official Legislative Analyst's Office estimate))

Reported by dnyuz.com, fortune.com, tokenpost.com