Two economists studied California's billionaire tax. They reached wildly different conclusions

In 1978, California voters approved Proposition 13, a historic tax revolt that became an opening salvo in the Reagan revolution and its national movement to slash taxes. Now, Californians are voting on Proposition 40, which could prove to be just as revolutionary — but in the opposite direction: it would create America's first-ever wealth tax targeted at billionaires. As Election Day approaches, economists have been duking it out over this proposed wealth tax.

It could provide a sort of nerdy preview of a coming national fight over taxing the superrich. Will this wealth tax help rein in runaway inequality and fill the state's coffers — or will it convince billionaires to fire up their private jets and set up residence in mansions outside the state? Some megabillionaires have already fled California since the tax was proposed.

On one side of this debate is economist Gabriel Zucman, a leading advocate for taxing the superrich who splits his time between UC Berkeley and the Paris School of Economics. Zucman helped design the national wealth tax proposals of Senators Elizabeth Warren and Bernie Sanders when they were running for president (which I covered back then in the Planet Money newsletter and podcast). He is the author of a new book with a blunt title: We Need To Tax Billionaires.

Naturally, he supports California's wealth tax, and he co-authored an influential analysis estimating it could raise about $100 billion in revenue. "If California says, 'We can tax billionaires. We can tax the wealthiest, most powerful people in the world,' it will be the beginning of not only a broader U.S.-wide movement, ultimately paving the way for a federal wealth tax — but I think it will be the beginning of an international movement," Zucman tells Planet Money.

On the other side of the debate is Stanford economist and Hoover Institution senior fellow Joshua Rauh. His analysis, co-authored with Benjamin Jaros, comes to a wildly different conclusion: the tax could lead to an exodus of billionaires out of California, damaging the state's economy and blowing a hole in the income tax revenue the state already collects from billionaires. " It would not raise $100 billion for the state," Rauh argues.

Instead, he estimates, this tax could actually end up draining California's state coffers. " We calculate that Proposition 40 would cost the state of California $39 billion." It's a classic Berkeley-Stanford rivalry, but the stakes are much higher than a football game. California voters are deciding whether to pursue a historic wealth tax experiment, which could influence tax policy around the nation, even the world.