California billionaires face 5% one-time tax vote as state aims for $110 billion

Californians will vote in November on Proposition 40, a one-time 5% tax on the wealth of billionaires who resided in the state on January 1, 2026. The measure represents the first direct tax on billionaire assets enacted anywhere in the world. If approved, the tax would apply to nearly $2.5 trillion in wealth held by 260 individuals listed on the Forbes billionaires list. Proponents estimate the measure would generate approximately $110 billion in revenue.

The funds are intended to replace Medicaid funding cut under the One Big Beautiful Bill Act passed last year. Six Nobel Prize-winning economists endorsed the proposal in an open letter, calling it a turning point in the battle between democracy and oligarchy. They argued the tax would spur similar measures in other states and eventually at the federal level.

However, the proposal faces strong resistance from within the state. Governor Gavin Newsom, who is expected to seek the Democratic presidential nomination in 2028, opposes the measure. So does Xavier Becerra, the Democrat running to succeed Newsom as governor. Both officials fear the tax will trigger a flight of wealthy residents to lower-tax jurisdictions. Google co-founder Sergey Brin has coordinated approximately $200 million in opposition spending. This campaign also supports two countervailing propositions, 41 and 42, which would limit the scope of the new tax by barring retroactive levies and new taxes on financial assets.

Recent data suggests the wealthy have not fled in large numbers yet. Between January and October of this year, the number of billionaires living in California increased by 20. The state's wealthiest residents also saw their collective wealth grow by roughly $400 billion this year. A September poll found that Proposition 40 sits just below majority approval, prompting intensified opposition efforts. Brin and Google co-founder Larry Page moved many business interests out of the state before the Christmas 2025 deadline. They also purchased homes in other states. Former Uber CEO Travis Kalanick moved to Texas, while PayPal and Palantir founder Peter Thiel relocated to Miami last year.

Economists disagree on the net fiscal impact. A Stanford University analysis concluded the tax would raise only about $30 billion. They projected that lost income tax revenue from departing residents would cost the state nearly $39 billion in net present value. This estimate aligns with studies of wealth tax avoidance in Swiss cantons and behavioral responses to estate taxes. Enrico Moretti, an economist at the University of California, Berkeley, and Daniel Wilson of the Federal Reserve Bank of San Francisco found that the location of the very rich is highly sensitive to estate taxes. Their research showed that by 2017, states with estate taxes had lost 23 of the 72 Forbes 400 billionaires who lived there in 2001.

Legal challenges are expected if the measure passes. Litigants may argue that retroactive taxation violates due process. Some assets, particularly real estate, are exempt from the tax. Foreign billionaires may also use double taxation treaties to reduce their liability. The tax is billed as a one-time event, but critics argue it could become permanent, further impacting future revenue streams.

The debate highlights the tension between revenue needs and the mobility of the ultra-wealthy. California’s top marginal income tax rate is 13.5%, compared to zero in Florida. Moretti noted that high-paid workers, not just billionaires, are sensitive to tax changes. A Cornell sociologist and a Treasury economist found little impact on affluent migration rates in the first year following the 2017 federal tax cut that capped state and local tax deductions. New York state, which has a 3.9% top city income tax and a 10.9% state tax, still hosts 154 billionaires. Only California has more. The outcome of the November vote will determine whether California proceeds with this untested fiscal experiment.