One of the more competitive electoral races in California involved Proposition 40, a referendum that would impose a one-time 5% wealth tax on billionaires. Being a reliable blue state in addition to the Democratic sweep of both houses of Congress, it seemed like this measure would pass, and California would have the nation’s first wealth tax.
But days went by without a projection announcement. The no votes had a slight lead, and the yes votes never caught up. Seven days after election day, the major news outlets in California projected that Proposition 40 would not pass.
For many, this is a surprising result. The state’s demographics seem to suggest they would favor a tax on billionaires. So what happened?
A major reason for its failure was that the referendum was not supported by all Democrats in California. The most well known are Gov. Gavin Newsom and Gov.-Elect Xavier Becerra. Democrat-leaning organizations such as the California Teachers Association and Planned Parenthood also opposed the measure.
They and Republicans feared that the wealth tax would drive away entrepreneurs and the billionaires that already pay significant amounts of income tax. This would hurt the state’s finances in the long term.
The wealth tax also comes at a bad time. Over the past few years, several large businesses have left California due to taxes and regulations. McKesson moved its headquarters from California to Texas in 2019. Charles Schwab relocated from San Francisco to North Texas around 2019-2020. Oracle shifted its headquarters from Silicon Valley to Austin in 2020. Tesla moved its headquarters from Palo Alto to Austin in 2021. Hewlett Packard Enterprise left for Texas around the same period. Chevron, with deep California roots, announced its move from San Ramon to Houston in 2024. SpaceX and X (formerly Twitter) followed to Texas in 2024. More recent departures include Realtor.com’s shift from the Bay Area to Austin in 2025 and John Paul Mitchell Systems’ relocation to Texas that same year. These moves have been repeatedly linked by company leaders to high taxes, heavy regulation, and the overall cost of doing business.
Many, including Democrats, were suspicious of this tax because almost all of the revenue collected would go to the health care industry. The Service Employees International Union (SEIU) who spearheaded this referendum stated that the wealth tax is necessary in order to address federal cuts to health care programs laid out in the One Big Beautiful Bill. Otherwise, many Californians, particularly low-income residents relying on the Medi-Cal program could be forced to go without health insurance. In addition, hospitals could either cut services or close altogether.
Even though Proposition 40 failed, the billionaires should remain on high alert. What is to stop SEIU or a similar organization from reviving the referendum in 2028? The authors of the referendum plan to put the wealth tax back on the ballot again. Or what if special interest organizations banded together and proposed a new wealth tax, this time at 10%? To address this, two competing referendums were also on the ballot that would limit or prohibit a wealth tax in California.
Proposition 41, which did not pass, would have required pre-election audits for ballot initiatives proposing special taxes and would undergo state audits every four years to determine program effectiveness and cost-saving measures. Proposition 42 would prohibit taxes enacted on or after January 1, 2026, on the ownership of individually owned assets. As of the date of publication, there is no decision on whether this referendum has passed or failed although the yes vote has a slight lead at 51.6% of the vote.
Some billionaires have taken action. For example, Meta/Facebook CEO Mark Zuckerberg considered leaving California due to the wealth tax. But Zuckerberg made an arrangement with Meta where he would stay in California if a new class of nonvoting stock was issued to him which he can then sell to pay the wealth tax. Critics argue that this would dilute the value of Meta shares.
Whether a wealth tax is an appropriate method of generating government revenue is debatable. But Proposition 40 introduced it in a way that did not generate unified support from the ruling Democrats. If it passed, then other groups will do the same thing. Also, while this was supposed to be a one-time tax, the authors can reintroduce it again if the need arises.
While many can emphasize with the SEIU’s interest in making sure Californians get proper health care, they should have taken this up with the state assembly or senate. There they can discuss all options instead of simply throwing money at the problem.
The California billionaires can rest easy knowing that Proposition 40 did not pass. But another billionaire tax could be on the way.
Steven Chung is a tax attorney in Los Angeles, California. He helps people with basic tax planning and resolve tax disputes. He is also sympathetic to people with large student loans. He can be reached via email at stevenchungatl@gmail.com. Or you can connect with him on Twitter (@stevenchung) and connect with him on LinkedIn.
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