California's proposed Billionaire Tax Act would violate multiple provisions of the US Constitution if voters approve it in November, according to a new paper from three scholars at Stanford University's Hoover Institution. The measure, which will appear on ballots as Proposition 40, would levy a 5 percent tax on the assets of the state's billionaires. The authors argue the proposal exceeds California's authority to tax under long-established constitutional limits.
The tax would apply to a person's global wealth as calculated on December 31, 2026, based solely on whether they lived in California on January 1, 2026. The measure would tax assets regardless of where the wealth is located or whether it was earned while the person resided in California, according to the paper's authors: Joshua D. Rauh, the George P. Shultz Senior Fellow in Economics at Hoover; Aharon J. Friedman, a visiting scholar; and Benjamin Jaros, a research fellow. Much of the targeted wealth sits in illiquid holdings like stakes in private companies and venture-backed firms, and the BTA contains provisions that would artificially inflate valuations of these types of assets, the research cited by the authors shows. The proposal uses a single-day residency test to determine who owes the tax, a structure the scholars describe as retroactive because the BTA itself characterizes the levy as "wholly new."
"The BTA contains serious legal vulnerabilities under the Constitution, and not just under the Due Process and Commerce Clauses under which state tax provisions are often litigated," Friedman said in a statement. The paper argues the measure also raises concerns under the Takings Clause and the prohibition against Bills of Attainder, particularly because it targets specific individuals and claims to prohibit Congress from allowing a federal income tax deduction for BTA liability. The authors contend the constitutional defects are severe enough that the BTA will be struck down, calling the flaws structural problems rather than technical details. According to Friedman, even if courts don't strike down the measure immediately, "enactment will likely lead to protracted litigation over issues such as asset valuation and residency, especially because of the unique one-day residency testing rule."
The paper identifies the disconnect between the wealth being taxed and California's authority over it as a core constitutional flaw. The measure violates Due Process protections because it taxes worldwide assets based on residence determined on a single day, without regard to where the wealth exists or was created. The authors draw on earlier work, including a Wealth Tax Primer they published in February 2026, to explain how wealth taxes operate and where they typically fail. They position the proposal within a broader national debate over wealth taxation and spending redistribution, calling it a test case for whether jurisdictions across the US can tax wealth. The paper also engages with analysis from supporters, including an expert report by Brian Galle and colleagues that examined Proposition 40's revenue, economic, and constitutional aspects.
The authors warn that the new wealth tax targets individuals who make up a significant portion of California's income tax base and will deliver far less revenue than supporters promise. Litigation could delay collection for years, and revenue projections assuming smooth implementation may prove too optimistic if courts strike down key provisions or if wealthy residents successfully relocate before the tax's residency date. This analysis follows earlier Hoover research finding Proposition 40 would likely cost the state tax revenue in the long run and that policy justifications for the measure rested on unfounded claims about federal support for California.