Economist Criticizes California Wealth Tax Proposal

Veronique de Rugy argues the wealth tax won't fix Medicaid funding or hospital costs in the state.

Mar. 19, 2026 at 7:00am

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Economist Veronique de Rugy criticizes a proposed California wealth tax, arguing that it won't solve the state's Medicaid funding issues or hospital cost problems. She says the wealth tax's projected revenue is unrealistic and that the real problem is overspending, not lack of revenue. De Rugy contends the wealth tax will instead accelerate the departure of high-earning taxpayers from the state.

Why it matters

The debate over a California wealth tax is a high-stakes issue, with proponents arguing it's needed to fund social programs like Medicaid, while critics like de Rugy say it will backfire and worsen the state's fiscal challenges. This dispute highlights the broader tensions around taxation, spending, and addressing income inequality.

The details

De Rugy takes issue with economist Emmanuel Saez's justification for the wealth tax, arguing that Medicaid spending has actually expanded significantly under the Biden administration, contrary to Saez's claim of federal 'cuts.' She says California's hospital funding crisis is driven by the state's expansion of Medicaid eligibility and an unsustainable financing structure, not a need for more revenue. De Rugy also cites research showing the wealth tax's projected revenue is unrealistic and that it will likely drive high earners out of the state, further eroding the tax base.

  • In a recent debate at Stanford University, Saez offered his central justification for the wealth tax.
  • Last year, California was $6.2 billion over its Medi-Cal budget.
  • One government report places the cost of covering immigrants without legal status alone as a $10 billion drain from the California General Fund.

The players

Veronique de Rugy

An economist and senior research fellow at the Mercatus Center at George Mason University, who is critical of the proposed California wealth tax.

Emmanuel Saez

A UC Berkeley economist considered an architect of California's proposed billionaire wealth tax, who has argued it is needed to fund the state's Medicaid program.

Joshua Rauh

A Stanford economist who has co-authored research finding the California wealth tax's projected revenue is unrealistic.

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What they’re saying

“Calling a 38% increase between 2024 and 2034 a "cut" is not an honest argument.”

— Veronique de Rugy, Economist

“Building on sound analysis as opposed to wishful thinking, Rauh's team saw billionaires already leaving and, as a result, other future tax revenues disintegrating. By driving high earners out permanently, the most likely "net present value" of the wealth tax is negative $24.7 billion.”

— Veronique de Rugy, Economist

What’s next

The California legislature will continue to debate the proposed wealth tax, with proponents and critics making their case to lawmakers and the public.

The takeaway

This debate highlights the complex tradeoffs and challenges involved in using tax policy to address income inequality and fund social programs. Reasonable economists can disagree on the merits and unintended consequences of a wealth tax, underscoring the need for rigorous analysis and honest debate on these high-stakes fiscal issues.