On Wednesday, Nobel Prize-winning economist Daron Acemoglu used X to clarify his reasons for endorsing a letter supporting California’s proposed billionaire tax.
Released on Saturday and co-signed by six Nobel laureates — Acemoglu among them — the letter endorses Proposition 40, a measure that would levy a one-time 5% tax on the state’s billionaires, channeling most proceeds toward healthcare.
The group of signatories — Acemoglu, Abhijit Banerjee, Peter Diamond, Esther Duflo, Paul Krugman, and Joseph Stiglitz — described the vote as “the first opportunity for the people to start reining in the power of billionaires.”
In his X post, Acemoglu stated he isn’t persuaded that permanent wealth taxes would be needed in an ideally structured tax-and-transfer framework. However, he argued the U.S. system is “very far from optimal” since it taxes labor income more heavily than capital income.
I want to briefly explain why I joined Abhijit Banerjee, Peter Diamond, Esther Duflo, Paul Krugman and Joe Stiglitz in signing the letter on the California billionaire tax: https://t.co/EN7sZkpBxA
In principle, I am not convinced that permanent wealth taxes would be necessary if…
This imbalance enables affluent business owners to take compensation in stock and borrow against those holdings, lowering their tax obligations, wrote Acemoglu — the 2024 Nobel laureate recognized for his research on wealth gaps between nations.
He also contended in his X post that the tax code incentivizes investment in machinery and AI rather than hiring workers.
Acemoglu outlined three justifications for a temporary wealth tax:
– “It partially reverses the effects of more than two decades of tax avoidance by the very wealthy.”
– “It acts as a brake on their growing dominance over the political process.”
– “It may pave the way for more comprehensive tax reform at the federal level.”
According to the letter, Proposition 40 could generate roughly $100 billion from California’s approximately 250 billionaires, whose combined net worth stands at $2.3 trillion — over three times the $700 billion held by the state’s top 0.001% a decade ago.
Want more Themoneytimes in your news feed?
Add Themoneytimes in Google so our reporting is easier to find when you’re searching for what matters.
The measure faces opposition from tech billionaires. Google cofounder Sergey Brin has donated $102 million to Build a Better California, a group opposing Proposition 40 and backing competing measures that could block the tax, per campaign filings.
Voters will decide on Proposition 40 during California’s midterm election on November 3. Two other tax-related measures, Propositions 41 and 42, are also on the ballot and could undermine Proposition 40 if passed.
Acemoglu conceded in his post that the measure is “not perfect.” A federal-level tax would mitigate capital-flight risks, he noted, and fewer constraints on revenue use would give the government more flexibility.
Nevertheless, he maintained that a temporary tax could recoup revenue lost to tax avoidance, curb the political influence of extreme wealth, and catalyze broader federal reform.
Given the lack of alternatives, Acemoglu wrote, California’s proposal “deserves support.”