California voters went to the polls on Tuesday to decide whether the state will impose the nation’s first tax on billionaires’ wealth, a one-time levy of 5 percent on the net worth of residents with more than $1 billion in assets.
Proposition 40 would reach roughly 200 people who lived in the state on Jan. 1, taxing ownership stakes in businesses, securities, investment accounts, art, collectibles and intellectual property while generally excluding real estate, pensions and retirement accounts. The union behind the measure, SEIU-United Healthcare Workers West, says it would generate an estimated $100 billion for health care and education over five years, money the campaign pitches as a backfill for federal cuts expected to push 2 million Californians off health insurance.
The official estimates are cooler. The nonpartisan Legislative Analyst’s Office puts the take at “tens of billions of dollars” over several years, well short of the union’s projection, and says billionaire departures could shave less than $1 billion a year from income tax revenue. In a National Bureau of Economic Research working paper published in October, Stanford economists estimated the tax event would bring in around $30 billion before prompting high-earning executives to leave the state, costing California $38.9 billion over time, Business Insider reported.
Money has flooded the No side. State campaign-finance filings show committees opposing the measure had reported about $130 million in contributions through Oct. 22, against about $33 million for its supporters. Billionaire opponents and business interests poured $316.7 million into stopping the tax in all, including support for two countermeasures on the same ballot, according to CalMatters.
Sergey Brin, a Google co-founder, led the opposition, publicly moving out of the state and giving $102 million to Building a Better California, a political committee he founded that has served as a passthrough for other billionaire donors. Eric Schmidt, a former Google chief executive, and the tech figures Max Levchin, Patrick Collison, Tony Xu, John Doerr and Chris Larsen have collectively poured in millions more.
Others are hedging. Mark Zuckerberg, Meta’s chief executive, has weighed moving out of the state, and in October the company created a new class of shares that would give him $20 billion in “immediate liquidity” if the tax passes, potentially letting him pay it without surrendering voting power. Jensen Huang, the chief executive of Nvidia, sounded unbothered on Bloomberg TV in January: “I’ve got to tell you, I have not even thought about it once. We chose to live in Silicon Valley, and whatever taxes they would like to apply, so be it. I’m perfectly fine with it.”
The measure has scrambled the usual alliances. Senator Bernie Sanders of Vermont backs it. Gov. Gavin Newsom, a Democrat, became one of its earliest opponents, trying through backroom negotiations to keep it off the ballot; he argued, alongside allies including Planned Parenthood of California and the California Teachers Association, that a one-time tax would not fix the state’s finances and would drive wealthy residents away. The California Democratic Party and the California Federation of Labor Unions backed the initiative anyway, citing the federal cuts.
Even a majority of yes votes might not be enough. Propositions 41 and 42 were designed by opponents to conflict with the wealth tax, and the state constitution says that when competing measures share a ballot, the one with the most yes votes wins and nullifies the rest. Proposition 41 would prohibit taxes that circumvent the state spending limit set in 1979 — as Prop. 40 is designed to do — and would require audits of future tax proposals. Proposition 42, which Mr. Newsom endorsed, would ban taxes on financial assets, private businesses, pensions and other forms of wealth altogether, killing the billionaire tax outright.
Prop. 40 is the brainchild of Dave Regan, the president of the health care workers union, who has been mired in scandal in recent months. Some members of SEIU California have accused him of threatening and intimidating women over the years and of trying to “extort” support for the measure, according to an internal investigation commissioned by SEIU California and the union’s national parent organization. Separately, the California Primary Care Association alleged in a recent lawsuit that the union violated anti-racketeering laws in part by asking clinics to back the billionaire tax in exchange for killing a clinic initiative. Mr. Regan and the union have called the allegations “categorically false,” a “smear campaign” designed to derail the tax.
If the measure survives the countermeasures, the billionaires who lived in California on Jan. 1 would be assessed on their net worth as of Dec. 31. Payment would be due in 2027, in one lump sum or, at a higher cost, in installments across five years.