California voters will decide on Proposition 40, a ballot measure that would create a one-time 5% tax on the wealth of the state’s billionaires. The vote is scheduled for November 3. If approved, the measure would target California residents who qualify as billionaires under the proposal. The proposal comes as California faces major demands for funding, especially for healthcare, food assistance and education.
California is home to as many as 250 billionaires, whose combined wealth is estimated at more than $2 trillion, according to the Reuters report. California also has more billionaires than any other US stateaccording to a Forbes estimate. The state is home to some of the world’s biggest companies, including Google, Apple, Meta and Nvidia, making California a major center of technology and wealth.
How would the 5% billionaire tax work?
Proposition 40 would impose the tax only once, rather than creating an annual wealth tax. The proposal is designed to tax the wealth of billionaires rather than simply taxing their yearly salaries or income. The measure is also retroactive to January 1, according to Reuters. This is important because it could limit the ability of billionaires to avoid the proposed tax simply by moving out of California after the measure passes.
Supporters describe the proposal in simple terms as a way to take a portion of billionaire wealth and use the money to pay for public needs. UC Berkeley economics professor Emmanuel Saez, who helped write Proposition 40, described it as “a tax on billionaires to fund healthcare.”
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How much money could Proposition 40 raise?
Supporters of Proposition 40 estimate that the measure could raise about $100 billion. They say the money could be used for areas including healthcare, food assistance and education. The $100 billion figure is disputed by opponents and other skeptics. They estimate that the measure could generate closer to $40 billion. The large difference between the two estimates is one of the major issues in the debate over Proposition 40.
Why are supporters backing the measure?
Supporters argue that California has a very large concentration of billionaire wealth that could be used to raise money for public services. Saez has argued that billionaires have accumulated enormous amounts of wealth and political influence. He said billionaires are “no longer very popular.”
The broader debate is also about income and wealth inequality and whether the wealthiest Americans should contribute more toward government programs. The issue is not limited to California. The Reuters report noted that other US politicians have also pushed ideas aimed at taxing wealthy people or their assets.
A Reuters/Ipsos poll conducted in August found that 64% of independent registered voters supported increasing taxes on corporations and billionaires, while 15% opposed the idea. The poll was conducted nationwide over six days.
What do opponents say?
Opponents argue that a billionaire wealth tax could encourage some wealthy people to leave California. If billionaires move out, opponents say California could lose not only the immediate tax revenue but also future tax revenue and investment connected to those wealthy residents.
Critics also point to the experience of some European countries. France, Sweden, Finland, Denmark and Germany repealed wealth taxes between 1997 and 2018 amid concerns about capital flight, tax avoidance and economic competitiveness. The argument is that wealthy people may change where they live or keep their assets in response to a wealth tax.
Sergey Brin’s opposition
The opposition campaign has received major financial support from billionaire Sergey Brin, the Google co-founder. Brin has spent more than $100 million opposing Proposition 40 and supporting other measures on the same ballot that would effectively cancel it, according to Reuters. Brin has said his family left the Soviet Union in 1979 and that he does not want California to develop what he described as a similar system.
What does Gavin Newsom think?
California Governor Gavin Newsom, a Democrat, also opposes Proposition 40. Newsom has instead supported the idea of a federal wealth tax, meaning a wealth tax that would apply across the United States rather than only in California.
What do the polls say?
Proposition 40 currently has support in some California polls, but the level of support has varied. A UC Berkeley IGS Poll in August found that 48% of likely voters supported Proposition 40, while 41% opposed it. A September Public Policy Institute of California poll showed the measure ahead, with 52% supporting it and 46% opposing it. Political analysts caution that early support for California ballot measures can change before Election Day.
John Pitney, a professor of politics at Claremont McKenna College, said California ballot measures often lose support over time and that being below 50% in August can be a negative sign for a measure’s prospects. The opposition campaign had also not yet fully increased its advertising efforts when the Reuters report was published, meaning the campaign could still change how voters view the proposal.
Why California’s ballot system matters
California has a strong direct-democracy system that allows citizens to propose laws and put measures directly before voters. Although citizens can launch initiatives, Reuters noted that many are actually drafted with help from interest groups or lawyers. California’s ballot measures receive significant attention because the state has both the largest state economy and largest population in the US
California’s history also includes major tax-related ballot measures. Proposition 13, approved in 1978, capped and rolled back property taxes and became a major symbol of the US tax revolt. However, California voters have historically approved only about one in three citizen initiatives, showing that putting a proposal on the ballot does not guarantee approval.
California has rejected a similar tax proposal before
Proposition 40 is not the first attempt to increase taxes on wealthy Californians. In 2022, Proposition 30 sought to increase taxes on high earners. California voters rejected Proposition 30 by 58% to 42%, despite Democrats greatly outnumbering Republicans in the state.
UC San Diego political science professor Thad Kousser said that although about 60% of Californians reliably vote Democratic in statewide elections, that does not necessarily mean voters have the same views on taxes, government spending or other social issues.
Could billionaires leave California?
One of the biggest questions surrounding Proposition 40 is whether wealthy residents would move out of California to avoid the tax. Because the measure is retroactive to January 1, supporters argue that simply moving after the proposal takes effect would not necessarily allow a billionaire to escape the tax.
Critics remain concerned that wealthy people could eventually change their residency or investment decisions because of the tax. Supporters disagree with the idea that the tax would cause California’s technology industry to collapse.
Saez argues that California’s universities, research institutions, infrastructure and large pool of skilled workers make the state attractive enough that the tax is unlikely to cause large numbers of billionaires or technology startups to leave. He argued that it would be unrealistic to expect Silicon Valley to “come to a standstill” because of a billionaire wealth tax.
Why Proposition 40 matters beyond California
The debate over Proposition 40 is part of a bigger debate in the US about how to tax very wealthy people. The main question is whether governments should collect more money from billionaires to pay for public services, or whether higher taxes could make wealthy people and businesses move to other places.
California’s vote could get attention across the country because the state has many billionaires and major technology companies. Proposition 40 would ask voters whether California should impose a one-time 5% tax on billionaire wealth. Supporters say the money could help pay for healthcare and other public needs. Opponents warn that the tax could affect investment, where wealthy people live and future tax revenue.