A Nobel Prize-winning economist explained why he’s backing California’s billionaire tax

Nobel Prize-winning economist Daron Acemoglu took to X on Wednesday to explain why he had signed a letter backing California’s billionaire tax.

The letter, published Saturday and signed by six Nobel laureates, including Acemoglu, supports Proposition 40, which would impose a one-time 5% tax on California billionaires, with the majority of revenues directed to healthcare in the state.

The six signatories — Acemoglu, Abhijit Banerjee, Peter Diamond, Esther Duflo, Paul Krugman, and Joseph Stiglitz — called the vote “the first opportunity for the people to start reining in the power of billionaires.”

In his X post, Acemoglu said he was not convinced that permanent wealth taxes would be necessary under an optimally designed tax-and-transfer system. But the US system is “very far from optimal,” he wrote, because it taxes labor income more heavily than capital income.

That disparity allows wealthy business owners to receive compensation in stock and borrow against their holdings, reducing their tax bills, Acemoglu — who won a Nobel Prize in 2024 for his work on wealth disparities between nations — wrote.

In his X post, he also argued that the tax code favors spending on machinery and AI over hiring workers.

Acemoglu said there are three grounds on which he thinks a temporary wealth tax is justifiable

1. “It partially reverses the effects of more than two decades of tax avoidance by the very wealthy.”
2. “It acts as a brake on their growing dominance over the political process.”
3. “It may pave the way for more comprehensive tax reform at the federal level.”

The letter estimates that Proposition 40 could raise about $100 billion from California’s roughly 250 billionaires. Together, it states, they are worth $2.3 trillion — more than triple the $700 billion held by the state’s wealthiest 0.001% a decade ago.

The proposal has drawn opposition from tech billionaires. Google cofounder Sergey Brin has contributed $102 million to Build a Better California, a group campaigning against Proposition 40 and supporting rival measures that could block the tax, according to campaign filings.

Acemoglu acknowledged in the post that the measure is “not perfect.” A federal tax would reduce capital-flight risk, he wrote, while fewer restrictions on the revenue could help the government use it more flexibly.

Still, he said a temporary tax could recover revenue lost through tax avoidance, restrain the political power of extreme wealth, and spur broader federal reform.

With few alternatives available, Acemoglu wrote, California’s proposal “deserves support.”