California's Prop 40 would hit ~200 billionaires with a 5% wealth tax — but rivals could kill it

California voters will decide on November 3, 2026 whether to impose a one-time 5% tax on the net worth of every resident worth more than $1 billion — a levy its backers say could raise tens of billions of dollars for healthcare and its opponents call a 'Trojan horse' that could eventually reach everyone else.

Proposition 40, placed on the ballot by the Service Employees International Union–United Healthcare Workers West, would apply to billionaires who were California residents as of January 1, 2026. The tax — equal to 5% of net worth — would be due in 2027, though taxpayers could spread payments over five years at additional cost. Real estate, pensions, and most retirement accounts are excluded. Ninety percent of the money raised must go to healthcare; the remainder to education, food assistance, and administering the tax itself.

The backdrop is California's structurally lopsided tax base. The state's top 1% of households have accounted for roughly 40% to 50% of all personal income tax revenue in recent years, according to the conservative Hoover Institution. In 2021, when the stock market soared, that group paid more than $60 billion in California personal income taxes alone — but the same concentration that produces windfalls in boom years triggers crippling deficits when markets fall.

Supporters argue the measure is a targeted fix: roughly 200 billionaires who together hold an estimated $2 trillion in wealth would fund healthcare that federal cuts have put at risk, without touching anyone else. Six Nobel laureate economists — Daron Acemoglu, Abhijit Banerjee, Peter Diamond, Esther Duflo, Paul Krugman, and Joseph Stiglitz — put their names to a letter endorsing the measure, contending that billionaires have exploited loopholes to sidestep taxes on capital returns even as their fortunes continue to grow.

As Californians head to the polls, their vote may well come to be seen as a turning point in the battle between democracy and oligarchy.— Nobel laureate economists' letter signatories

Opponents have focused less on the tax's immediate targets than on what they say could come next. The measure contains a clause permitting the state legislature to amend it by a two-thirds vote, provided any such change is 'consistent with and furthers the purposes of the 2026 Billionaire Tax Act.' Detractors argue that phrasing is broad enough to open the door to future expansion. California's courts have issued mixed rulings on legislative changes to ballot measures: in 1995 the state Supreme Court held that lawmakers may make alterations if they advance voters' original intent 'by any reasonable construction,' yet in 2019 the Third District Court of Appeal invalidated an amendment to the Political Reform Act on the grounds that it directly conflicted with the law's primary purpose, according to CalMatters.

The opposition has also raised concerns about what kinds of wealth would be taxed. Unrealized capital gains and illiquid stakes in private companies — critical to startup culture — would be included in the calculation of net worth, even if the owner cannot easily sell those assets to pay the bill. Even Rep. Ro Khanna, who supports the measure, has said he does not want illiquid stakes or voting shares to be taxed, according to Yahoo Finance.

The political coalition against Prop 40 is unusually broad. Gov. Gavin Newsom opposes it, as do both major-party candidates for governor, the California Medical Association, the California Primary Care Association, the California School Boards Association, the California Teachers Association, and several labor unions who argue other spending priorities should come first. Google co-founder Sergey Brin contributed more than $100 million toward defeating the measure. Nvidia CEO Jensen Huang, by contrast, said he is 'perfectly fine' with it.

Newsom went further than simple opposition: he endorsed Proposition 42, a counter-measure funded and placed on the ballot by Brin that would prohibit retroactive taxes like Prop 40's and ban any new taxes on personal property — including pensions, 401(k) accounts before retirees begin drawing income, investments, financial assets, business holdings, and art collections. That would effectively foreclose not just Prop 40 but any future wealth tax in California.

We all agree that Californians deserve to have their retirement and life savings protected from new state taxes so those savings are there when they need them.— Gov. Gavin Newsom

By voting yes on Prop 42, he's showing California his true colors. He'd rather millions of children and families lose their healthcare than ask a couple hundred billionaires to finally pay their fair share.— Debru Carthan, Vice President, SEIU-United Healthcare Workers West

Prop 40 also faces a structural threat from the ballot itself. Under Proposition 41, any new taxes would be subject to the state's existing spending limit. Proposition 42 would bar taxes on financial assets and personal property other than real estate. Both measures include language stating that conflicting measures are void if they receive more yes votes — meaning that if either Prop 41 or Prop 42 passes with more votes than Prop 40, courts could find a conflict and block Prop 40 from taking effect even if it also passed. The Legislative Analyst's Office has flagged this risk explicitly.

A recent poll from the Public Policy Institute of California found majority support for all three measures simultaneously — a result that underscores the legal uncertainty ahead.

Supporters of Proposition 40, the so-called billionaire tax initiative, have a lot of work to do.— Mark Baldassare, survey director, Public Policy Institute of California

Revenue estimates vary sharply depending on assumptions. The Legislative Analyst's Office projects 'tens of billions of dollars spread over several years' — deliberately vague because billionaire wealth is heavily concentrated in stocks whose value fluctuates, and because taxpayers may take steps to reduce what they owe, including leaving the state. The SEIU has put forward a figure of $100 billion, while a study cited by opponents and attributed to Stanford economists put the potential cost to California at $25 billion in lost revenue as companies and wealthy residents move away. The Legislative Analyst notes that neither figure comes from its office. According to the LAO, an ongoing annual decline of less than $1 billion in income tax revenue is also possible if billionaires choose to leave.

Supporters counter that California's appeal to the wealthy remains strong. According to the letter signed by the Nobel laureate economists, California has drawn 80% of all new venture capital funding in the U.S. since the start of 2026, a share that stood at roughly 50% before 2025, and they contended the tax would not doom Silicon Valley. Opponents say a one-time tax provides only temporary money and that exempting the revenue from the state's school-funding guarantee shortchanges schools by roughly $3 billion a year.

If Prop 40 passes and survives legal challenge, the Nobel laureate economists argued it could 'kick-start a movement' that spreads beyond California — a prospect opponents cite as further reason to stop it now.

Why it matters — The outcome will determine whether California can use a wealth tax to plug a healthcare funding gap — and whether such taxes become a model for other states or are constitutionally foreclosed in California for good.

Sources differ on Total revenue Prop 40 would generate: Tens of billions of dollars spread over several years (voterguide.sos.ca.gov (Legislative Analyst)) vs $100 billion (finance.yahoo.com (SEIU campaign)) vs Net loss of $25 billion due to departures (ballotexplained.com (opponents' cited study))

Sources differ on Whether Prop 40's legislative amendment provision could allow expansion beyond billionaires: Yes — the language is broad enough to enable future expansion ('Trojan horse') (finance.yahoo.com / ballotexplained.com (opponents)) vs No — the tax cannot be applied to anyone other than billionaires (ballotexplained.com (supporters' rebuttal))

Reported by ballotexplained.com, voterguide.sos.ca.gov, spur.org, finance.yahoo.com, sacbee.com, calmatters.org, policyengine.org