California Rejects Proposition 40, a One-Time 5% Tax on Billionaires

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California voters have rejected Proposition 40, a proposed one-time 5% wealth tax on billionaires aimed at funding public healthcare and education. The measure faced strong opposition from tech billionaires and was outspent 10 to 1 by opponents.

California voters have decisively rejected Proposition 40, a ballot measure proposed as a one-time 5% tax on residents with net worths exceeding $1 billion. The tax, intended to be applied retroactively to anyone residing in California as of January 1, 2026, was designed to fund key state public programs, most notably Medi-Cal, the state’s Medicaid healthcare program. Backers, primarily labor unions, argued the tax would impact only a small group—around 200 billionaires holding roughly $2 trillion in combined wealth—but could generate up to $100 billion over five years to support public health and education.

Opponents, heavily funded by California’s tech billionaires including Google co-founder Sergey Brin, argued that the measure would prompt wealthy residents to leave the state, ultimately undermining California’s economy and its tax revenues in the long term. Reports indicated the opposition’s campaign raised nearly 10 times more than supporters, spending up to $379 million on a media campaign to defeat the proposition.

Critics such as Florida-based venture capitalist Nic Carter expressed concerns that such taxes negatively signal to entrepreneurs and investors, potentially stifling venture capital funding and innovation in California. Carter described the tax as a “sword of Damocles” hanging over founders, warning it could inhibit investment by forcing founders to liquidate significant portions of their shares to pay the tax.

California entrepreneur Jesse Tinsely echoed such sentiments, noting his own startup journey involved building a company valued in the billions by maintaining control via super voting shares—a structure he believes the tax would undermine, effectively forcing founders to either raise outside capital or relocate.

However, economists who helped craft Proposition 40, such as UC Berkeley professor Emmanuel Saez, countered these claims. Saez stated the wealth tax could be structured to dilute economic ownership without affecting voting control, citing common dual-class share structures used to protect founder control. Saez also highlighted that California’s billionaire class currently contributes about $3 billion annually in tax revenue, a minor portion of the state’s budget, and that rising wealth concentrated among few individuals and companies calls for more equitable tax policies.

Despite its populist appeal and potential to generate substantial public funds, the proposal failed to secure majority support in the midterm elections. Supporters have indicated intentions to revisit similar wealth tax initiatives in future ballots, potentially in 2028. The decisive defeat reflects ongoing tensions between addressing wealth inequality and preserving California’s reputation as a global hub for innovation and capital formation.