California midterms 2026: Why the billionaire tax fight could become a national test

The proposal, Proposition 40, would direct most of the money towards healthcare. But the ballot fight is more complicated because two other measures – Propositions 41 and 42 – could prevent Proposition 40 from taking effect even if voters support it.

That makes California’s 2026 vote about more than a tax increase. It could become a test of whether a US state can tax accumulated billionaire wealth rather than simply taxing income.

California has one of the largest concentrations of billionaires in the US. The state has as many as 250 billionaires with combined wealth of more than $2 trillion, reported Reuters.

What is Proposition 40?

A wealth tax is different from a normal income tax. An income tax is charged on money a person earns, such as salary, business income or investment income. A wealth tax is based on the value of what a person owns, after accounting for debts.

Proposition 40 would impose a one-time 5% tax on the net wealth of qualifying billionaires who lived in California on January 1, 2026.

The tax would be due in 2027, although taxpayers could spread the payment over five years by paying an additional amount. Certain assets, including real estate, pensions and retirement accounts, would generally be excluded from the calculation.

The proposal would send 90% of the revenue to healthcare, with the remaining 10% going towards education, food assistance and administration of the tax.

The Legislative Analyst’s Office says the measure could raise tens of billions of dollars, although the final amount would depend on asset values and how wealthy taxpayers respond.

Supporters cited by Reuters expect the measure to raise around $100 billion for healthcare, education and food assistance. Critics have put the potential revenue closer to $40 billion.

The state’s non-partisan Legislative Analyst’s Office has also warned that some wealthy residents could leave California or change their taxable income in response to the tax. It estimates that the state could lose less than $1 billion a year in income-tax revenue as a result, while also facing additional administrative costs.

Why are Propositions 41 and 42 important?

The unusual part of California’s ballot fight is that voters will not consider Proposition 40 in isolation.

Proposition 41 would change rules governing new state taxes and spending. The Legislative Analyst’s Office says it could conflict with Proposition 40 because the billionaire-tax proposal specifically excludes its revenue from some constitutional spending-limit rules.

Proposition 42 would prohibit new state taxes on certain personal property and some retroactive state taxes. Because Proposition 40 taxes certain forms of wealth and uses January 1, 2026 as its residency date, the two measures could also come into conflict.

The important point for voters is that Proposition 40 could receive majority support but still fail to take effect if either Proposition 41 or 42 receives more “yes” votes and a court determines that the measures conflict.

That makes the three propositions closely connected, even though they ask different questions.

The California ballot fight is therefore not simply about whether voters want to tax billionaires. It is also about whether another measure could prevent that tax from being implemented.

Why are billionaires and businesses opposing it?

Opponents argue that a wealth tax could encourage wealthy residents to leave California, change their investments or otherwise reduce their exposure to the tax. California relies heavily on wealthy taxpayers for income-tax revenue.

Google co-founder Sergey Brin has spent more than $100 million opposing Proposition 40 and supporting the counter-measures, reported Reuters.

Supporters dispute the argument that the tax would drive businesses and wealthy residents out of the state.

Emmanuel Saez, a University of California, Berkeley economics professor involved in developing the proposal, told Reuters that California’s universities, infrastructure, research base and talent would continue to attract companies and entrepreneurs.

The economic question is therefore larger than how much money Proposition 40 could collect in one year.

California would have to balance the large one-time revenue opportunity against the possibility of losing some future income-tax revenue if wealthy residents change their behaviour.

A 2026 National Bureau of Economic Research paper by Jasper Boll, Emmanuel Saez and Gabriel Zucman estimated that California billionaires had about $2.3 trillion in wealth by the middle of 2026. The researchers estimated that they paid about $3.2 billion a year in California income taxes on average during 2023-25, equivalent to around 2.4% of the state’s total income-tax revenue.

Why could California become a national test?

Most state tax systems focus on income. Proposition 40 would test a different approach – taxing a portion of accumulated wealth. Other states are also debating higher taxes on wealthy residents, although most such measures target income rather than billionaire wealth.

If California implements Proposition 40, other states could study how much revenue it actually generates, whether wealthy taxpayers change their behaviour and how courts treat challenges to the tax.

If the measure fails, opponents could use California’s experience to argue against similar state-level wealth taxes.

The legal questions could also continue after Election Day. The Tax Foundation has stated that Proposition 40 could face constitutional challenges over issues including residency and the taxation of wealth.

California Governor Gavin Newsom opposes Proposition 40 and has instead backed a national approach to taxing very wealthy Americans. Supporters include Senator Bernie Sanders and the Service Employees International Union-United Healthcare Workers West, according to the official California voter guide.