Nobel Prize-winning economist Daron Acemoglu posted on X on Wednesday to outline why he signed a letter supporting California’s proposed billionaire tax.
Published Saturday, the letter was endorsed by six Nobel laureates, including Acemoglu, and backs Proposition 40. The measure would levy a one-time 5% tax on California billionaires, directing most of the proceeds toward healthcare in the state.
The 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 said he was not persuaded that permanent wealth taxes would be needed within an ideally designed tax-and-transfer system. However, he argued that the US system is “very far from optimal” because it places a heavier tax burden on labor income than on capital income.
According to Acemoglu, this imbalance enables affluent business owners to take compensation in stock and borrow against their assets, thereby lowering their tax obligations. He received the Nobel Prize in 2024 for research into wealth disparities among nations.
He also contended that the current tax code encourages investment in machinery and artificial intelligence rather than the employment of workers.
Acemoglu identified three reasons why he believes a temporary wealth tax is defensible:
– “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.”
The letter estimates that Proposition 40 could generate approximately $100 billion from California’s roughly 250 billionaires. It says their combined wealth totals $2.3 trillion, more than three times the $700 billion held by the state’s wealthiest 0.001% ten years ago.
The proposal has faced resistance from technology billionaires. Campaign filings show that Google cofounder Sergey Brin has donated $102 million to Build a Better California, an organization opposing Proposition 40 and backing competing measures that could prevent the tax from taking effect.
California voters will decide on Proposition 40 during the state’s November 3 midterm election. Two additional tax-related measures, Propositions 41 and 42, have also been proposed and could potentially undermine the passage of Proposition 40.
Acemoglu acknowledged in his post that the measure is “not perfect.” He wrote that a federal tax would lessen the risk of capital flight, while reducing restrictions on how the revenue may be used would give the government greater flexibility.
Even so, he said a temporary tax could reclaim money lost to tax avoidance, limit the political influence of extreme wealth, and encourage wider reform at the federal level.
Given the limited alternatives, Acemoglu wrote that California’s proposal “deserves support.”