California voters decide on Nov. 3 whether to become the first state in the nation with a wealth tax. The California billionaire tax, Proposition 40, would take a one-time 5% cut of every billionaire’s net worth. Yet the loudest opponent is not a Republican. Instead, it is Democratic Gov. Gavin Newsom, who says he is voting no.
That should tell you something. When one of the most progressive governors in America calls a tax a bad idea, the problem is not politics. The problem is the math. Here is why the rest of the country should pay close attention.
Key Takeaways
- Proposition 40 would charge California billionaires a one-time tax equal to 5% of their net worth, due in 2027.
- The tax applies to anyone who lived in California on Jan. 1, 2026, even if they move away later.
- California’s nonpartisan Legislative Analyst’s Office expects tens of billions of dollars over several years, plus a possible ongoing income tax loss of under $1 billion a year.
- Gov. Gavin Newsom and both candidates for governor say they will vote no.
- Two rival measures, Propositions 41 and 42, could block the wealth tax if they win more yes votes.
What the California Billionaire Tax Would Do
According to the Legislative Analyst’s Office, Prop. 40 applies to Californians worth more than $1 billion who lived in the state on Jan. 1, 2026. They would owe 5% of their net worth in 2027. They could also spread the bill over five years, but they would pay more to do so. Real estate, pensions, and retirement accounts generally fall outside the tax.
CNBC reports that roughly 200 to 250 billionaires live in California. Ninety percent of the money would go to health care, and the rest would go to education, food assistance, and running the tax. Notably, the measure also exempts this money from the state’s constitutional spending limit.
Supporters say the California billionaire tax could raise about $100 billion. However, the state’s own analysts will only commit to “tens of billions of dollars” spread over several years. They also admit the timing and size are “very hard to predict.”
A Tax on Wealth Is Not a Tax on Income: The California Billionaire Tax
This is the key point. An income tax takes a share of what you earn. By contrast, the California billionaire tax would take a share of what you own, including stock that has never been sold. As CalMatters explained, it works like a property tax on stocks, bonds, and business shares.
That creates real problems. First, someone has to put a price on private companies and startup stakes. Berkeley economist Alan Auerbach told CNBC that “valuing private companies and nontraded assets is an issue for any wealth tax.” Second, the tax follows people out the door. A Holland & Knight analysis notes that the tax looks back to residency on Jan. 1, 2026, so a billionaire who moves to Texas next month could still owe it.
In other words, California would decide who owes based on where people lived before voters ever approved the tax. That retroactive design is exactly why Prop. 42 exists. It would ban new taxes on personal savings and bar taxes that reach back before they pass.
Wealth Moves, and Even Newsom Knows It
Newsom put the problem plainly in a June post. “Wealth is movable, and it shops for the state with the lowest taxes,” he wrote. Democratic candidate Xavier Becerra agreed that this is “not the way to do tax policy.” Meanwhile, Republican candidate Steve Hilton warned against driving more revenue out of the state.
The warning signs are already visible. Google co-founder Sergey Brin bought a Miami home in March, CNBC reported. In addition, Meta’s board agreed to change its stock structure after Mark Zuckerberg said he might be forced to leave the state over the tax, according to an SEC filing revealed last week.
Of course, the tax is designed so that leaving now does not escape the bill. But it cannot stop the next founder from choosing Austin over Palo Alto. A study from the Hoover Institution estimates that California billionaires pay $3.3 billion to $5.8 billion a year in state income taxes. Because of departures, the authors put the net present value for the state at negative $38.9 billion. Even the Legislative Analyst’s Office expects some permanent income tax loss.
Why ‘One-Time’ Rarely Stays One-Time
Supporters insist the California billionaire tax is a one-time levy. One of the measure’s drafters, UC Davis law professor Darien Shanske, called it “a one-time tax for a one-time emergency.” He also pointed out that any future tax would need another vote.
Still, Californians have heard this before. In 2012, voters approved a “temporary” tax increase on high earners to fund schools. Voters extended it in 2016. Now, this same ballot carries Proposition 3, which would make that higher bracket permanent, CalMatters reports. So a temporary tax has turned into a 14-year fixture and counting.
Auerbach saw the same risk. “There is nothing in the proposition to keep the tax from being imposed again in the future, and recent history suggests it will be,” he told CNBC. Moreover, the threshold matters. Once the state builds the machinery to value and tax private wealth, lowering the bar from $1 billion takes only another vote.
The California Billionaire Tax Treats a Spending Problem as a Revenue Problem
Backers say the money must replace federal health care cuts from last year’s tax law. We take that concern seriously, because real families rely on those programs. Even so, California already spends heavily. The state and federal government spend more than $200 billion a year on state health care programs, the LAO notes.
A fiscal conservative asks a simple question first. Before a state reaches for a brand-new kind of tax, has it squeezed waste out of what it already spends? Prop. 41 at least points in that direction, since it would require audits of programs paid for by new taxes.
Similarly, our look at France’s debt protests showed what happens when governments promise more than their tax base can carry. And as we noted with Sen. Ron Wyden’s data center tax, new taxes on a narrow group rarely stay narrow.
Fair Points on the Other Side
To be fair, some billionaires back the idea. Nvidia CEO Jensen Huang told CBS that paying it would be a “privilege.” Supporters also argue that the very wealthy realize little taxable income because they rarely sell their assets. That critique of the current system deserves a serious debate.
Nevertheless, a bad fix does not become good because the problem is real. Polling on the California billionaire tax has tightened, too. A UC Berkeley poll in September found 45% yes and 42% no, down from a 19-point lead in March. Since 2000, only about a third of California tax measures have passed.
Frequently Asked Questions
What is the California billionaire tax?
It is Proposition 40, a one-time 5% tax on the net worth of Californians worth more than $1 billion. Most of the money would go to health care programs.
Who would pay Proposition 40?
It would apply to people with a net worth above $1 billion who lived in California on Jan. 1, 2026. Real estate, pensions, and retirement accounts are generally excluded.
Could Prop. 40 pass and still fail?
Yes. If Proposition 41 or 42 gets more yes votes, courts could find that it blocks Prop. 40, even if a majority approves the wealth tax.
So here is our question for you: should any state be allowed to tax what you own, not just what you earn?
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