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There’s no denying the visceral satisfaction of a billionaire bloodletting. But will the measure’s wealth tax actually help the state?
Taxation, like everything else in life, is an exercise in trade-offs.
How much public good can a tax extract before it passes the tipping point into harm?
As it relates to Proposition 40 on California’s November ballot, many believe you don’t have to look very hard to find where the cost-benefit needle falls.
The measure would impose a one-time 5% wealth tax on anyone whose total net worth is greater than $1 billion as of Dec. 31, 2026, and who was a California resident on Jan. 1, 2026. After administrative costs, 90% of the revenue would go to public healthcare, while the other 10% would go to food assistance and education. The total collected could range from $28 billion to $100 billion — depending on whose math you believe. (California’s nonpartisan Legislative Analyst’s Office estimates the state will “probably” collect “tens of billions.”)
Whatever the total, there’s no denying that California billionaires — who by some counts control a combined $2 trillion in wealth — can afford to shoulder it.
Darien Shanske, a UC Davis law professor and a coauthor of Prop 40, called the measure a “rounding error” on the fortunes of California’s wealthiest.
For this mostly bloodless toll, Californians get relief from President Donald Trump’s “big, beautiful” Medicaid cuts and radiate with satisfaction at sending a landmark message about wealth inequality.
Or so it would seem.
Is Prop 40 so flawlessly executed that California has nothing to lose if it passes?
Opposition from the California Teachers Association, Planned Parenthood, California Medical Association, the NAACP, California Professional Firefighters and the State Building and Construction Trades Council of California suggests not.
Let’s start with the healthcare organizations, which would effectively receive 90% of Prop 40’s funds. Why are they opposed?
Dustin Corcoran, CEO of the California Medical Association, said in an endorsement interview that there’s no guarantee Prop 40’s payload will arrive in time to backfill Trump’s cuts. The state has no existing system for assessing billionaire wealth, he said, and it will likely take years to develop one.
Corcoran cited his experience as a backer of Prop 56, which passed in 2016 and imposed a tax on vape products.
“It probably took the Franchise Tax Board 10 years of us beating them up because they couldn’t figure out how to get the tax right,” he said. “And that was a fairly straightforward thing to try and figure out.”
Even if the money does land, and that’s a big if, Corcoran argued that weak “anti-supplantation” protections in the measure will allow lawmakers to spend its revenue however they see fit — undermining one of Prop 40’s most powerful arguments, the urgency of the moment for healthcare.
University of Missouri School of Law Professor David Gamage, one of Prop 40’s coauthors, disputed these notions. He estimated that “75% of billionaire wealth is in publicly traded assets,” making much of it easy to track. And even if the measure does have supplantation holes, political pressure will prevent California politicians from treating Prop 40 revenue like a slush fund.
These vague assurances don’t persuade Jodi Hicks, CEO of Planned Parenthood Affiliates of California. Healthcare organizations like hers, she said, use forward-looking budgets. They can’t commit to providing services if they can’t definitively rely on money coming in to pay for them.
Meanwhile, Prop 40 puts the money Hicks can count on in jeopardy.
That’s because California’s budget is overly dependent on income taxes — roughly half of which historically come from the ultra-wealthy top 1% of taxpayers.
Studying the impacts of Prop 40 “was an eye-opening experience for what California’s tax structure is and how the wealthy are a part of it,” Hicks said.
This gets at the real questions surrounding Prop 40 and why so many otherwise progressive organizations oppose the tax: Will billionaires leave the state if the measure passes, and will they take their companies with them?
“Good riddance” is the popular retort among online commentators.
But that attitude is childish and self-defeating. A recent case study explained why.
The world’s wealthiest man, Elon Musk, left California in 2020, citing high taxes as one of his reasons. He took Tesla’s corporate headquarters with him to Texas the following year.
By some estimates, California lost an estimated $2.5 billion in capital gains revenue from one stock transaction in the first year of Musk’s move. In a state where 40% of state dollars are required by law to go to public education, that’s a $1 billion hole in California’s school budget from one man alone.
This answers why the formidable California Teachers Association — never one to shy away from a back-alley tax brawl — doesn’t support Prop 40.
Then there are the jobs.
Many Tesla workers stayed behind in California. But new Tesla jobs are now sprouting up across Texas, including nearly 10,000 for a proposed $10 billion solar cell factory.
You’ve heard the aphorism, “Keep your friends close and your enemies closer.” Here’s a real-world example of why.
Sending billionaires and the jobs and economic might that come with them to Texas or Florida does not help California. Nor does it help the prospects for building a more just society. It simply makes those red states more powerful.
So, will Prop 40 send billionaires fleeing?
A working paper from Stanford says yes, and argues that exodus will result in a net tax revenue loss of nearly $39 billion for California. Indeed, some billionaires — most famously Google cofounder Sergey Brin, who has dumped hundreds of millions into opposing Prop 40 — have already announced their departures.
Some economists dispute the Stanford study, arguing it ignores basic human motivation. Prop 40 will hit any billionaire who lived in California as of Jan. 1. Why would they uproot their lives now over a one-time tax they have to pay regardless — especially one they can easily afford?
We’d counter that California’s nation-leading 13.3% marginal income tax rate — necessary as it may be, given our state’s finances — already poses a flight risk. Even Gamage said he was “uncomfortable” with the top rate. A wealth tax merely compounds a danger that already exists.
It’s true that Nvidia CEO Jensen Huang has committed to ponying up his estimated $8 billion in dues. And Meta CEO Mark Zuckerberg has apparently agreed to stay in California for eight years after strong-arming the company into eating his wealth tax burden.
Yet the debate around flight risk has largely focused on the wealthiest of the wealthy. Less discussed are the paper billionaires — those with unrealized stakes in valuable startups and other private companies.
Prop 40’s method for assessing this wealth is dubious. Some believe the measure allows voting shares or control percentage to be used in calculating wealth, rather than ownership stake, which could be wildly off. The measure does offer a mechanism for the wealthy to contest their asset valuations, but at what point are companies going to decide enough is enough and seek their fortunes elsewhere?
“Only idiot startup founders stay in Cali” if Prop 40 passes, billionaire investor Mark Cuban has said on social media. “You can bet if I’m investing in a multi-billion-dollar startup, I’m asking them to move from California first.”
“Boo hoo,” you say?
California’s startup culture is a crucial engine of its economy. According to the Legislative Analyst’s Office, companies in the state receive nearly half of all American venture capital. Another study found these investments help employ 1.2 million people. As companies grow their roots, California’s budget sees the benefit.
Many argue that the talent ecosystem in California makes an exodus impossible.
But people said the same thing about Hollywood for decades. Now the entertainment industry is shedding thousands of jobs to states like Georgia and North Carolina that offer more favorable economic incentives.
If movie titans are willing to abandon a company town practically built to indulge their excess, it’s not a stretch to imagine a significant portion of the tech universe fleeing to Miami or Austin, where workforce housing is cheaper, they would pay no state income tax, and the sword of future wealth taxes would no longer hang over their endeavors.
All this speaks to why tackling extreme wealth is better approached at the federal level. There’s evidence from Spain and elsewhere that the wealthy will shop around regionally for lower taxes. There’s much less evidence that they’ll flee the country.
We are already seeing momentum for a federal inequality crackdown. Democrats are poised to retake Congress, and Rep. Laura Friedman, D-Burbank, recently announced legislation that would impose an excise tax of 23.8% on most line-of-credit loans — which are leveraged against assets like stocks — above $1 million.
Ever wonder how the Zuckerbergs of the world get by on a salary of $1? Borrowing against stock gives them access to cash without having to pay capital gains. In fact, in some cases, interest payments on these loans are tax deductible under federal policy.
Fixing these loopholes would force the ultra-wealthy to either take salaries or liquidate assets when they need cash, which would mean income tax boons for states like California.
Obviously, with Trump still in charge, it could take a few years for these and other changes to manifest.
Instead of being patient, however, Prop 40 throws the full weight of risk on California’s shoulders now.
“Are we destined to live in an oligarchic society begging for crumbs while our economic and political lives are controlled by a handful of the wealthiest people on Earth?”
We wholeheartedly agree with these sentiments, espoused by Vermont Sen. Bernie Sanders at a recent rally in support of Prop 40.
But living up to them demands strategic thinking, not primal screaming.
Ultimately, neither this editorial board nor anyone else has any idea what the full effect of Prop 40 will be.
Even Emmanuel Saez, the French economist and an author of Prop 40, has conceded that his measure is an “experiment.”
It just happens to be one dropped into the maw of the world’s fourth-largest economy — a wealthy state in aggregate, but one with a volatile, incoherent system of taxation and the highest poverty rate in the nation.
If Prop 40 backfires, California will have chased away its cash cows with no backup plan. Our sales and income taxes are already the highest in the nation; there’s no more room for hikes. Meanwhile, Prop 13 stunts our ability to raise new revenue from property taxes.
No one is coming to save us. And it won’t be the wealthy who suffer.
Maybe, just maybe, the stakes are too high in California to be playing a game of chicken. Maybe the brightest and boldest minds in the field of economic justice should help stabilize California’s tax base before turning our state into a laboratory?
Alternatively, we’d suggest those unable or unwilling to pursue their urgent economic experiments at the federal level can find a suitable petri dish in Sanders’ Vermont, which has about as many people as Fresno yet is still home to at least one billionaire and more than a dozen centimillionaires.
California isn’t a lab rat. Voters shouldn’t allow our state to be treated like one.