Larry Page, Larry Ellison, and Peter Thiel are breathing a sigh of relief after California voters soundly rejected Proposition 40, the ballot
measure that would have taken a one-time 5% bite out of the fortunes of the state's billionaires.
For several of them, the relief comes from a distance. Long before a single ballot was counted, the Google co-founders, the Oracle founder, and the PayPal co-founder had moved out of the state or relocated businesses, part of an exodus set off by the proposed tax that, as written, would have applied to anyone who was a California resident on Jan. 1, 2026.
With 60% of the vote counted, the measure trailed 44.4% to 55.6%. It needed only a simple majority to pass.
Proposition 40 would have imposed the one-time 5% tax on individuals and trusts holding more than $1 billion in assets, payable over five years. The money was earmarked primarily for state health care programs, with smaller shares for public education and food assistance.
The tax would have reached businesses, securities, art, collectibles, and intellectual property. Real estate, pensions, and certain retirement accounts were exempt.
Supporters, led by the health care workers' union SEIU-UHW, pitched it as an emergency backstop for hospitals and clinics facing federal Medicaid cuts. They said it would raise about $100 billion from the roughly $2.3 trillion held by the state's billionaires as of mid-2026.
Progressives including Sen. Bernie Sanders, California Rep. Ro Khanna, and billionaire climate activist Tom Steyer backed the measure, arguing it would keep Californians from losing their Medi-Cal benefits as federal health dollars dried up.
But several Democratic state leaders campaigned against it. Gov. Gavin Newsom opposed it, as did Xavier Becerra, who cruised to victory over Republican Steve Hilton Tuesday night, and former Rep. Katie Porter, warning it would drive wealthy residents and their tax payments out of California.
In June, the day after Prop 40 qualified for the ballot, Newsom proposed a national "billionaires' tax" instead: a federal minimum tax on Americans worth more than $100 million, new rules on inheritance, and a national public equity fund that would give Americans a stake in AI-driven wealth.
A Newsom spokesperson told ABC News last month that the governor supports a national tax on billionaires and proudly joined teachers, firefighters, reproductive health clinics, and others in opposing what the statement called a "poorly written state measure that will harm California."
Earlier in October, Newsom went further and endorsed Prop 42, which would cancel the billionaire tax and ban future wealth taxes in the state. In a statement released by the measure's backers, he said Californians' retirement and life savings should be protected from new state taxes. Supporters of the billionaire tax criticized the endorsement as siding with his billionaire backers.
The measure's biggest impact came before its Election Day defeat: The mere threat of the tax pushed some of the state's best-known fortunes toward the exits.
Brin, who shifted assets out of the state as the measure advanced, had been among its loudest critics, at one point telling an interviewer he had "fled socialism."
Others said they were watching the vote closely. Max Levchin, the billionaire co-founder of Affirm, a financial technology company, told Bloomberg on the eve of the election that he would "probably" leave if the tax passed. He called the state beautiful but said a public willingness to accept what he described as asset seizure struck him as deeply wrong.
The defeat followed a steady slide in the polls. In September, both of the state's most closely watched surveys had the "yes" side ahead. By October, neither did.
The Public Policy Institute of California found support among likely voters dropping from 52% in September to 46% in October, while opposition climbed from 46% to 52%, an almost exact reversal.
UC Berkeley's Institute of Governmental Studies saw the same shift. Its September poll had the tax ahead 45% to 42%. A month later, 50% of likely voters said they would vote no, 42% said yes and 8% were undecided.
Opponents raised hundreds of millions of dollars to defeat the tax, most of it from the billionaires who would have paid it. They argued that the levy would chase the state's wealthiest residents away and leave California with less tax revenue over time.
They also hedged their bets. Building a Better California, a political action committee set up by billionaires opposed to the tax, spent an estimated $304 million to defeat the measure, and put two competing measures on the ballot – Propositions 41 and 42 – whose provisions conflicted with Prop 40. Even had the wealth tax won a majority, it could have taken effect only if both of those failed.
Those results were mixed. Proposition 41, which would have required an audit of programs funded by special taxes, failed 52.5% to 47.5% with 59% reporting. Proposition 42, which would have prohibited new state taxes on personal property and would have nullified the wealth tax if it had passed, passed 54.3% to 45.7%.
Much of the campaign turned on a question economists could not settle: Would taxing billionaires once bring in more money than it cost?
UC Berkeley economists Emmanuel Saez and Gabriel Zucman, with Jasper Boll of the Paris School of Economics, estimated the tax could raise about $100 billion over five years with comparatively little damage to income tax collections. Billionaires, they noted, pay only about $3 billion a year in state income tax, roughly 2.5% of the base, because so much of their wealth sits in investments rather than salaries.
Hoover Institution economists Joshua Rauh and Benjamin Jaros reached a starkly different conclusion. They found announced departures had already shrunk the taxable base by about 30%, and projected actual collections of $28 billion to $36 billion after accounting for avoidance.
Weighed against the income tax revenue lost permanently when billionaires leave, estimated at $3.3 billion to $5.8 billion a year, they put the tax's net present value at negative $38.9 billion, with a net loss in about 85% of their simulations.
The defeat closes the door on this measure, but not on the broader debate. Opponents had warned that the "one-time" tax could have been amended by a two-thirds vote of the state legislature without returning to voters, opening the way to future wealth taxes.
The question now is whether the billionaires who left will come back, and whether California can fill the health care funding gap the measure was meant to close.
Few politicians have more riding on how the result is read than Newsom, who fought the state measure while arguing for a bigger version of the same idea. With progressives emboldened after Tuesday's blue tsunami, Newsom may take up the national wealth tax mantra again. He has framed it as part of a broader "economic reset" that also included tighter inheritance rules and a public AI equity fund.
His case against the California version was that wealth is mobile: A single state's tax, he argued, would simply push billionaires to move themselves and their assets somewhere cheaper.
"The fight belongs at the federal level," he wrote.
Newsom did not propose a rate or spell out exactly what he thought should be taxed. Federal wealth taxes have long been championed by progressives such as Sens. Sanders and Elizabeth Warren, but none has advanced in Congress.
Prop 40's defeat lets Newsom tell national audiences he stopped a tax he warned would drive jobs and revenue from California while still supporting alternate proposals to tax the ultra-rich. The careful positioning keeps him from alienating some Silicon Valley tech titans that he may call on to fund his presidential campaign – at least for now.
This article was originally published by RealClearPolitics and made available via RealClearWire.Source link
