California Voters Reject Proposition 40 Billionaire Wealth Tax

California voters rejected Proposition 40, the proposed one-time 5% wealth tax on residents worth more than $1 billion, the Associated Press reported Monday. The measure lost after a lopsided spending fight in which the "no" side raised roughly 10 times as much money as supporters — including as much as $379 million from billionaires such as Google co-founder Sergey Brin.

The defeat came despite populist appeal and backing from labor unions. Governor Gavin Newsom also opposed the measure.

What would Proposition 40 have done?

The ballot measure, put before voters during California's midterm election last week, proposed a special one-time 5% wealth tax on state residents with a net worth above $1 billion. It would have applied retroactively to anyone residing in California on January 1, 2026.

The revenue was earmarked for public programs. Most notably, it would have funded Medi-Cal, the state's Medicaid program that provides healthcare to qualifying low-income residents.

Backers projected the tax could have raised as much as $100 billion over five years. They framed the cost as a minor inconvenience for a tiny group: California has a little over 200 billionaires who own a cumulative total of approximately $2 trillion in wealth.

Opponents countered with the capital flight argument. They said the state's wealthiest residents would permanently relocate, draining a more consistent source of revenue over time. A critical but contested analysis published before the vote claimed the proposal would actually have lost the state money over the long run. The flight argument dominated conversations online among business leaders in the run-up to the vote.

What did investors and founders say before the vote?

Nic Carter, a general partner at the crypto-focused venture capital firm Castle Island Ventures, said the tax would have been a gift to fiscally conservative states. Carter works frequently in San Francisco with tech startups but lives in Florida.

"I think it'd be great for Florida and Texas if these kinds of taxes pass," Carter told TechCrunch last week. "I think it's a shame, frankly, that California has this sort of semi-monopoly on capital formation, and that it's being squandered by local governance that's super dysfunctional."

Carter called the tax a "sword of Damocles hanging" over founders' heads. The threat, he said, extended beyond this single levy to anticipated future taxes.

"You're signaling to the entrepreneur class that you consider them a resource to be plundered," he said.

He claimed the tax would "inhibit venture capital investment" because VCs "wouldn't necessarily want to invest in a company if they knew the founder was going to have to liquidate a huge percentage of their shares." Since many billionaires keep most of their wealth tied to their companies, newly minted billionaires would have had to sell shares to pay the bill.

Jesse Tinsely, co-founder and CEO of Mainstreet — a fintech holding company that owns employment sites like Employer.com and Recruiter.com — agreed. He said his own trajectory would have been impossible under the tax, and he repeated a widely held fear that founders taxed on corporate assets would be pushed to give up control of their companies.

"I bootstrapped my business. I have super voting shares, and I came from a [background as a] college dropout [and] broke firefighter with bad credit and whatnot, and built a business that's valued into the billions," Tinsely said last week. "I think it [the tax] removes the ability to do something like that."

He said the proposal "forces founders to opt into a system" where "anyone who wants to become an entrepreneur has to…raise money or some type of capital, or move. Those are basically the only two options."

How did the economists behind it respond?

Emmanuel Saez, a French economics professor at UC Berkeley, helped create and promote the ballot measure alongside fellow Berkeley economist Gabriel Zucman. Saez said fears about founders losing control were unfounded and not part of the proposal's design.

"The wealth tax hits you by diluting your economic ownership but [shares] can be easily structured to avoid losing any control rights," Saez said. He noted that many billionaires own only a small percent of their companies, and that stock can be structured to divorce economic ownership from voting control — a common method being the dual-class share structure, which gives founders powerful voting rights even with limited shares.

Saez also argued that AI has driven a huge explosion of wealth in California, but that this wealth sits with a very small number of companies and individuals who pay little back into state coffers. California takes in an estimated $3 billion a year from the billionaire class — about 1% of total revenue expected between 2025 and 2026.

Why did the measure fail — and what comes next?

Money shaped the outcome. Opponents funneled resources into a multi-pronged media assault designed to discredit the measure, with as much as $379 million coming from billionaires including Brin, according to spending figures cited in the campaign. The AP reported the "no" side raised roughly 10 times what the "yes" side raised.

The fight may not be finished. The AP reported that supporters said they could put a similar tax back on the ballot in 2028, meaning California's billionaires face at least two more years of debate over how much of their $2 trillion the state can claim.