California voters will decide whether the state should create a one-time tax on billionaires through Proposition 40. The proposal would generally charge a 5% tax on the wealth of California residents worth more than $1 billion. Supporters say the tax could raise tens of billions of dollars for health care, food assistance and public education after major federal funding cuts. Opponents and other critics worry the tax could encourage some billionaires to leave California, which could reduce state tax revenue in future years.
California Wants to Tax Billionaires 5%
Proposition 40, also known as the Billionaire Tax Act, would create a one-time tax on some of the wealthiest people in California. The tax would generally be 5% of taxable wealth for people worth more than $1 billion. The rate would gradually increase for people whose wealth falls between $1 billion and $1.1 billion.
California has around 250 billionaires who together hold more than $2 trillion in wealth, according to data cited by the California Budget & Policy Center. The tax would apply to billionaires who were California residents on January 1, 2026. Their taxable wealth would generally be calculated using its value at the end of 2026. Billionaires could pay the entire amount with their 2026 tax return or spread their payments over five years, with an additional charge for delaying payment. This would not be a yearly wealth tax. It is designed as a one-time tax.
How Much Could California Collect?
It is difficult to know exactly how much money Proposition 40 would raise. The California Legislative Analyst’s Office estimates that the tax could bring in tens of billions of dollars in the short term. The authors of Proposition 40 estimate it could raise around $100 billion over five years. Other researchers have estimated a smaller amount, closer to $40 billion initially.
The estimates are different because nobody knows exactly how billionaires would respond. Some could challenge the tax in court, change how they hold their assets, or attempt to establish residency somewhere else.
There could also be disagreements about how much certain assets are worth. Stocks in publicly traded companies are relatively easy to value because their prices are publicly available. Private companies, artwork, intellectual property, and other assets can be much more difficult to value.
Proposition 40 includes rules for calculating these values and allows certified appraisals when there is a disagreement.
Where Would the Billionaire Tax Money Go?
Most of the money raised through Proposition 40 would be used for health care. Under the proposal, 90% of the revenue would go toward health care, while the remaining 10% would go toward education and food assistance.
The health care money could be used to protect programs such as Medi-Cal, replace some lost federal funding, and support health care providers serving lower-income communities.
The smaller education and food assistance fund could support public schools and programs that help families buy food, including CalFresh and other California food programs. The proposal comes as California prepares for major reductions in federal funding.
The California Budget & Policy Center says federal changes could result in around 1.3 million Californians losing Medi-Cal coverage by 2029-30. Other federal changes could also reduce the number of Californians receiving health insurance through Covered California.
Supporters see Proposition 40 as a way for California to replace some of that lost money without raising taxes on most residents. However, the money would have limits. It could not simply be spent on anything California wants. For example, Proposition 40 revenue would not be available for affordable housing, renter assistance, homelessness programs or subsidized child care.
Why Supporters Want Billionaires to Pay More
The argument behind Proposition 40 is largely about the difference between income and wealth. Someone can have billions of dollars in wealth without receiving billions of dollars in regular taxable income.
For example, a business founder may own billions of dollars worth of stock. If the stock increases in value but the person does not sell it, that increase is generally considered an unrealized capital gain and is not taxed as income at that time. That can allow someone’s wealth to grow significantly without all of that growth immediately appearing on an income tax return.
The California Budget & Policy Center points to Mark Zuckerberg as an example of how Proposition 40 could work. If Zuckerberg had approximately $200 billion in wealth subject to the tax at the end of 2026, a 5% tax would equal about $10 billion. Under the proposal, he could pay that amount over five years.
Supporters argue that people with this level of wealth can afford to contribute more when California is facing cuts to programs used by millions of residents. They also point to California’s large wealth gap. The wealthiest 20% of households have a net worth above $1.5 million, while the bottom 20% have a net worth of $13,000 or less, according to figures cited in the report.
Could Billionaires Leave California?
One of the biggest arguments against Proposition 40 is the possibility that wealthy residents could leave California. California depends heavily on income taxes paid by high-income residents. If enough wealthy people permanently move to states with lower taxes, California could lose some of that income tax revenue in future years.
The Legislative Analyst’s Office estimates that future state income tax collections could decline, likely by less than $1 billion per year, depending on how many billionaires leave California because of the tax.
Proposition 40 attempts to make leaving harder as a way to avoid the tax. The proposal says the tax would apply to billionaires who were California residents on January 1, 2026, even though voters would decide on the measure later. That part of the proposal is expected to face legal challenges, and it is uncertain how courts would rule. There is also disagreement over how much taxes actually influence wealthy people to move.
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Research on previous California income tax increases has found relatively small changes in migration among high-income taxpayers. But a 5% tax on billionaire wealth would be very different from a normal increase in income tax rates, and no U.S. state has implemented exactly this type of wealth tax.
That makes Proposition 40 something of an experiment. If voters approve it and the measure survives legal challenges, California could receive tens of billions of dollars to help protect health care, food assistance and education. But the money would only be temporary. Once the billionaire tax revenue is spent, California could again face funding problems if federal cuts remain in place. California voters will ultimately have to decide whether collecting a large amount of money from a very small group of extremely wealthy residents is worth the possible financial and legal risks that could come with it.
