Tax Billionaires, Save Lives: California’s Proposition 40 Is Met With a Heap of Meritless Objections

What could be wrong with imposing a one-time 5% tax on billionaires’ wealth to pay for health insurance for low-income Californians? The opponents of California Proposition 40 found plenty to criticize. But before we turn to what’s wrong with their objections, let’s get a few things straight.

Today's ever-worsening inequality has reached levels not seen in the U.S. economy for eight decades. Ever since the mid-1990s the share of pre-tax national income going to the richest 1% of families has exceeded the share going to the bottom 50% of the population.

As bad as income inequality is, wealth inequality is yet worse. Wealth holdings are far more concentrated at the top than income. In June 2026, the top one-tenth of one percent (0.1%) of the wealthiest families held a 22.2% share of U.S. wealth, while the wealth share of the bottom 50% was just 1%. On top of that, the share of wealth held by the top 0.0001% (about 200 households) has tripled from 2.2% in 1990 to 6.9% in June 2026. 

Proposition 40’s billionaire tax is much needed, especially in California. A disproportionate number of U.S. billionaires reside in the state. As of July 2026, 250 billionaires resided in California, more than in any other state. And in January 2026, California’s billionaires held 27% of the wealth of all U.S. billionaires.

Proposition 40’s one-time 5% tax on billionaires’ wealth would be an important step toward creating a more equal economy, and it would also help to put democracy ahead of oligarchy. 

What the Critics Get Wrong About Prop 40

The California Secretary of State’s Official Voter Information Guide includes two pages of arguments for and against Proposition 40. But the guide comes with the warning that the arguments “have not been checked for accuracy by any official agency.” Let’s do some of that checking.

 Make Billionaires Pay Their Fair Share of Taxes

Opponents of Proposition 40 insist that billionaires already pay their fair share of taxes—or, in fact, more than their fair share. The economists at the MIT Sloan School of Management found that the top 1% of California’s income earners paid more than 40% of California’s income taxes in 17 of the past 20 years. 

But those numbers don’t measure tax fairness. Assessing tax fairness requires looking at the share of taxpayers’ income paid in taxes, not their share of total tax revenues. It’s what economists call an “effective tax rate.”

In their article, the MIT economists did assure readers that California has a “highly progressive” tax system—one in which the effective tax rate of rich taxpayers is greater than that of middle-income taxpayers, which in turn exceeds that of low-income taxpayers. But “highly progressive” is a gross exaggeration. While California’s tax code is more progressive than that in all but three states, it is still far from “highly progressive.” In 2023, the poorest 20% of California taxpayers paid 11.7% of their income in state taxes, compared with 10.4% for the middle 20% of taxpayers and 12.0% for the top 1%—only slightly higher than the effective tax rate paid by the poorest quintile.  

On top of that, the tax data of the top 1% say precious little about the tax burden of California’s billionaires. By July 2026, the wealth of the top 0.001% of California families (the top 225 billionaires in 2026) had reached $2.3 trillion. That was 25 times what it had been in 1982, after correcting for inflation. In addition, in 2024 some 8.8% of the income of the richest 1% of families went to pay the California income tax, while billionaires paid out 5% of their income, or about 0.2% of their wealth holdings.  

In short, the tax burden of California billionaires, whether measured as a share of their income or as a share of the tremendous wealth they have accumulated, is not commensurate with the tax burden of most Californians, even most rich Californians. That’s not fair. 

Will They Cut and Run?

If Californians pass Proposition 40, will the state’s billionaires head for the exits? The answer from most every opposition group is a definitive yes. Vote No on Prop 40, for instance, claims that the billionaire tax will push the state’s most successful residents to leave, causing a drastic and permanent reduction in state revenues. A study by the Hoover Institution, a conservative California think tank, finds that the shortfall could amount to $25 billion a year. 

Assessing the consequences of a one-time tax on billionaires has its challenges. Nonetheless, there is good reason to dismiss these warnings of an impending catastrophe if Proposition 40 is approved as hyperbolic.   

To begin with, the supporting evidence is questionable. For instance, the findings of the Hoover Institution study rely on reports that six California billionaires, including some of the state’s wealthiest billionaires, moved out of the state in late 2025. That would allow them to avoid the billionaire tax, which would be levied on any billionaire residing in California on January 1, 2026. 

Buying a home in another state, however, is not enough to establish nonresidency in California. These billionaires would need to do considerably more to sever their business and personal ties to the state. Attorney Chris Manes, a leading California residency tax planner, reports that the Franchise Tax Board, California’s tax enforcement agency, believes that these billionaires will be unable to renounce their California residency in time to avoid the one-time billionaire tax. And in that case, the Hoover Institution’s conjecture that the billionaire tax would raise just $40 billion, well short of the $100 billion predicted by its supporters, falls apart.

The Hoover Institution study’s contention that over time the flight of billionaires will open up a $25 billion hole in California’s tax base is also questionable. On its face, it hardly seems credible that a one-time billionaire tax, which would not tax billionaires who enter the state after January 1, 2026, would have such a drastic and long-lasting effect.

That’s especially true of California, which, together with Silicon Valley, has remained a magnet for venture capital even since the wealth tax initiative was announced. An August 2026 Wall Street Journal article reports that California is “in the midst of a record-shattering investment wave, fueled by the artificial-intelligence boom in Silicon Valley.” Data provider PitchBook documents that California had been flooded with around $366 billion of venture capital since the beginning of the year. That’s more than three times the venture funding invested in the other 49 states combined, and nearly double California’s previous record, set in 2025. 

To date, we have seen precious little evidence of the predicted outflow of billionaire capital. In addition, there is little history to assess the effects of a one-time billionaire tax. 

The two historical examples that get invoked in this debate are of questionable relevance. First, critics are quick to point out that nine of 12 European countries that once imposed wealth taxes have since abandoned them (see here and here).  But European wealth taxes differed sharply from California’s proposed billionaire tax. For starters, they were not one-time taxes. In addition, European wealth taxes set a much lower threshold for where the tax began than a tax on billionaires. Spain’s wealth tax begins at $448,000, the Swiss wealth tax starts in the low six figures, and Norway's wealth tax starts at just $199,000. Compared to those measures, the California wealth tax would affect a minuscule number of far wealthier taxpayers.

The second historical example involves states, including California, that have raised income tax rates on their richest residents.  

In November 2012, California voters approved a ballot initiative that raised the tax rate on taxable income over $1 million by three percentage points to 13.3%. Stanford economists Joshua Rauh and Ryan Shyu detected that after the jump in the top income tax rate, departures among taxpayers with more than $5 million in taxable income increased. But they described it as “a one-time movement.” On the other hand, in his 2018 book, The Myth of Millionaire Tax Flight, Cornell sociologist Cristobal Young found that by 2015 the number of Californians on the Forbes 400 list had risen from 84 to 92, and the state’s tax revenues had increased by more than what had been projected. 

Taken together, these historical examples do not support the claim that Proposition 40 would drive billionaires out of California or create a “drastic and permanent” hole in the state’s finances.

One-time or Just the First Year?

For Dave Regan, the president of the Service Employees International Union—United Healthcare Workers West (SEIU-UHWW), which spearheaded the ballot measure, the one-time billionaire tax is needed to address an emergency. Without it, the number of Californians under age 65 without health insurance would “nearly double” from roughly 2.4 million to 4.6 million by 2030, according to the UCLA Center for Health Policy Research. And “nearly 90 percent” of the increase in the number of Californians without health insurance will be due to changes in eligibility requirements under Trump’s “Big Beautiful Bill,” especially new work requirements for certain Medi-Cal enrollees—a law that lavished tax cuts on the richest 1%. Some 90% of the tax revenue raised by Proposition 40 would be spent on health care services for the public, according to the Legislative Analyst’s Office (LAO). The rest would be spent on education, food assistance, and the administration of the wealth tax.   

Opponents remain adamant that Proposition 40 is fundamentally flawed because it would attempt to address an ongoing, multiyear crisis with a one-time wealth tax. 

The mismatch between the ongoing health insurance crisis and the one-time wealth tax is a problem. But just how much of a problem depends on how many billionaires flee California and how much state tax revenue they would otherwise have generated. As we have already established, the dire predictions of billionaire flight don’t hold up under examination. In addition, billionaires have contributed relatively little in California income taxes compared with their wealth gains, paying just 1.6% of those gains on average from 2019 to 2025. Nor have the critics offered an alternative solution that would prevent Californians from losing their health insurance.

Other opponents, including Jared Walczak of the conservative Tax Foundation, argue that the one-time wealth tax’s inability to resolve the ongoing health care crisis will be used to justify future ballot measures establishing a recurring, if not permanent, wealth tax. The Wall Street Journal’s editorial board is also convinced that “proponents will almost certainly later seek to extend the tax beyond a year. 

Finally, while California’s Democratic Party has endorsed the state’s proposed billionaire tax, Democratic Governor Gavin Newsom has continued to oppose it. “In the spirit of unity,” SEIU-UHWW sent the governor an open letter offering to lower the one-time tax rate to 2%, but Newsom rejected the offer, calling the California wealth tax, whatever its rate, a flawed measure, while reiterating his support for a national wealth tax. More recently, Newsom has come out in favor of Proposition 42, which would prohibit new state taxes on financial assets, business interests, and personal property (all of the things people own other than real estate). If approved by voters, Proposition 42 could invalidate Proposition 40. 

Yes, a national wealth tax would be better. However, California’s action could be an important step toward national action. For instance, economists Jasper Boll, Emmanuel Saez, and Gabriel Zucman, whose research has played a key role in making the empirical case for Proposition 40, believe that “if Proposition 40 passes and the wealth tax is successfully implemented and raises substantial revenue, it could encourage other states, the nation, or other countries to follow suit, or California to later enact a permanent annual wealth tax on billionaires.” 

Also, six Nobel laureates in economics argue in their open letter in support of Proposition 40 that if Californians vote to tax billionaires’ wealth, “it will kickstart a movement to tax ultra-high-net-worth individuals in other states—and eventually at the federal level.” They add, “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.”

We sure hope they’re right.

John Miller is a professor emeritus of economics at Wheaton College and a member of the Dollars & Sense collective.