California’s revenue is notoriously top heavy, leaving state coffers vulnerable to boom-and-bust cycles as the wealthiest residents see their incomes rise and fall with the stock market.
In recent years, the top 1% of California households have accounted for about 40% to 50% of all personal income tax revenue, according to the conservative Hoover Institution.
In fact, the top 1% paid more than $60 billion in California personal income taxes in 2021, when the stock market soared. The flip side is that the state suffers crippling deficits when the market tanks, as during the Global Financial Crisis.
Now, California’s Proposition 40 seeks to tax billionaires’ wealth in addition to their incomes, and opponents have launched a full-court press, calling it a “Trojan horse” that will eventually come for all Californians.
The ballot initiative calls for residents worth more than $1 billion to pay a one-time tax equivalent to 5% of their assets. The union pushing Prop 40, the Service Employees International Union–United Healthcare Workers West, has said the wealth tax could raise $100 billion in revenue and help offset federal cuts to health spending.
Prop 40 includes a provision that says the state legislature could modify it with a two-thirds vote—but only “if the statute is consistent with and furthers the purposes of the 2026 Billionaire Tax Act.”
Prop 40 backers insist it’s only aimed at billionaires. Still, any changes would be up to state lawmakers, though courts would also weigh in on any attempts to stretch the scope to all taxpayers or to extend it beyond a one-time levy.
According to CalMatters, there have been numerous instances in which the state legislature has amended other ballot measures after they have passed. There have also been times when the courts have upheld the changes and when they have struck them down.
In 1995, the state Supreme Court ruled lawmakers can make changes if they advance voters’ original intent “by any reasonable construction,” the report said. But in 2019, the Third District Court of Appeal rejected an attempt to amend the Political Reform Act, saying it “directly conflicts with a primary purpose” of the law.
Of course, there’s nothing that would prevent another ballot initiative in the future from taxing wealth to fund other spending priorities. And if Prop 40 succeeds, similar initiatives could pop up elsewhere.
A group of Nobel laureate economists who support Prop 40 have said the ballot measure could “kick-start a movement” that spreads well beyond California.
In a letter signed by Daron Acemoglu, Abhijit Banerjee, Peter Diamond, Esther Duflo, Paul Krugman, and Joseph Stiglitz, the economists argued that while billionaires have “made important contributions,” they have also been “amply rewarded” and have used loopholes to avoid taxes on capital returns, allowing their wealth to compound further.
“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,” the letter added.
Prop 40’s critics have warned the tax is unlikely to be a one-time deal and also raised alarms about the forms of wealth that would be targeted, such as unrealized capital gains and privately held stock that’s key for startups.
Supporters point to the AI boom and say California’s ultrarich would still be among the world’s wealthiest. And the Nobel laureates contend the tax will not doom Silicon Valley, saying California has attracted 80% of all new venture capital funding in the U.S. since the start of 2026, up from about 50% before 2025.
Prop 40 has split the state’s political and business leaders. Gov. Gavin Newsom is against it, while U.S. Rep. Ro Khanna is for it. But even the congressman has conceded he doesn’t want illiquid stakes or voting shares to be taxed. Some unions have also come out in opposition, saying other areas of state spending should be priorities, too.
Meanwhile, Nvidia CEO Jensen Huang said he’s “perfectly fine” with it, while Google cofounder Sergey Brin contributed over $100 million toward opposing the billionaire tax.
Further complicating the matter is competition from other ballot measures that would nullify Prop 40. Proposition 41 would make any new taxes subject to the state’s existing spending limit, while Proposition 42 would prohibit taxes on financial assets and personal property other than real estate.
A recent poll from the Public Policy Institute of California found all three have support from a majority of voters.
“Supporters of Proposition 40, the so-called billionaire tax initiative, have a lot of work to do,” Mark Baldassare, the survey’s director, told KQED.
This story was originally featured on Fortune.com
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