Supporters project a $100 billion windfall, but the Legislative Analyst’s Office forecasts lasting income-tax losses as wealthy residents leave.
California voters will decide in November whether to impose a one-time wealth tax on the state’s roughly 200 billionaires, but by Friday, Proposition 40’s promise to rescue healthcare had divided Democrats, labor unions and medical organizations that typically support higher taxes on wealthy residents.
The measure would levy up to 5% on covered assets exceeding $1 billion and direct 90% of the proceeds to healthcare.
Gov. Gavin Newsom made his position unequivocal after negotiations to remove or revise the measure collapsed.
“I’m voting no,” Newsom wrote.
Newsom argued that taxing mobile wealth at the state level could prompt billionaires to relocate, depriving California of the income and capital-gains taxes they otherwise would have paid.
“You may not be able to pick up and move to Texas or Florida to shelter your income from taxation, but I promise you that billionaires can, and do,” Newsom wrote. “Wealth is movable, and it shops for the state with the lowest taxes.”
The Democratic governor also criticized Proposition 40 for reserving nearly all its revenue for one area of the budget rather than providing money for housing, universities, public safety and other programs.
“This is not how we should set California’s budget priorities,” Newsom wrote.
Newsom’s opposition placed him alongside Democratic gubernatorial candidate and former Health and Human Services Secretary Xavier Becerra, Republican nominee Steve Hilton, the California Teachers Association, Planned Parenthood Affiliates of California and several statewide healthcare organizations.
Becerra and Hilton both opposed the tax during the gubernatorial campaign, while Democratic billionaire Tom Steyer supported it.
The California Teachers Association said its governing council concluded the temporary tax would not deliver dependable funding for schools.
The council “determined that this policy will not provide the sustainable and long-lasting funding that our schools and communities deserve,” the union said.
Planned Parenthood Affiliates of California CEO Jodi Hicks similarly said the organization supported progressive taxation but objected to Proposition 40’s drafting, allocation rules and temporary revenue stream.
“We definitely appreciate the goals behind the Billionaire Tax Act,” Hicks said. “We believe that the wealthy should pay their fair share. We believe in a progressive tax structure.”
Hicks said healthcare providers need predictable funding rather than a single collection spread over several years.
“Healthcare is complicated, and it requires stable and long-term funding for healthcare providers to be able to make the decisions they need to provide access to care,” Hicks said.
Proposition 40’s supporters, led by SEIU-United Healthcare Workers West, contend the tax is necessary to offset federal Medicaid reductions and prevent hospital closures, coverage losses and healthcare layoffs.
Measure architect Dave Regan said the proposal was designed to prevent “the imminent collapse of California’s health care system because of the Trump cuts in the ‘One Big Beautiful Bill.’”
The campaign estimates the tax could generate approximately $100 billion, although California’s nonpartisan Legislative Analyst’s Office projected only “tens of billions of dollars” because asset values and taxpayer responses are difficult to predict.
The analyst also forecast a “likely ongoing decrease” in income-tax revenue of hundreds of millions of dollars or more annually as some billionaires relocate or alter their finances. Those recurring losses would affect the general fund after the wealth-tax proceeds were exhausted.
Opponents have also amassed a substantial financial advantage. A committee associated with Google co-founder Sergey Brin and former Google CEO Eric Schmidt raised more than $80 million during the first quarter and has pursued separate ballot measures that could restrict or undercut Proposition 40.
