California Weighs One-Time 5% Wealth Tax on Billionaires

California voters will decide on November 3 whether to impose a one-time 5% tax on the state's billionaires, under a ballot initiative that has drawn national attention to questions of wealth inequality and the state's business climate.

Proposition 40 would apply to an estimated 200 to 250 billionaires who call California home, a group whose combined wealth is put at more than $2 trillion. The measure is retroactive to January 1, a provision intended to limit the ability of wealthy residents to avoid the tax by relocating.

Backers say the levy would raise $100 billion for healthcare, food assistance and education. Sceptics put the likely revenue closer to $40 billion and warn that it could push some billionaires out of the state, costing California future tax receipts and investment.

Public opinion is finely balanced. A UC Berkeley IGS poll in August found 48% of likely voters in support and 41% opposed, while a September survey by the Public Policy Institute of California showed the measure leading 52% to 46%. Analysts caution that California ballot measures typically need strong early support to survive, since undecided voters tend to break against them and opponents have yet to begin heavy advertising.

"California ballot measures tend to lose support over time, and if it's polling below 50% in August, that's not a good sign for its prospects," said John Pitney, a professor of politics at Claremont McKenna College.

Opposition has been bankrolled in part by Google co-founder Sergey Brin, who has spent more than $100 million to defeat the measure and to support countermeasures on the same ballot that would effectively nullify it. Brin, whose family left the Soviet Union when he was a child, told the New York Times he did not want California to follow what he described as a path toward socialism. Governor Gavin Newsom, a Democrat widely seen as a future presidential candidate, also opposes the initiative and has instead called for a federal wealth tax.

Emmanuel Saez, a UC Berkeley economics professor who helped draft the measure, argues that the tax is unlikely to drive many billionaires or technology startups out of California, citing the state's universities, research base, infrastructure and talent pool. "It's just absurd to think that Silicon Valley is going to come to a standstill because of a billionaire wealth tax," he said.

The debate extends beyond California. A national poll in August found 64% of independent registered voters favouring higher taxes on corporations and billionaires, against 15% who opposed the idea. In New York City, Mayor Zohran Mamdani campaigned successfully for a tax on high-end second homes, filming a video in front of billionaire investor Ken Griffin's penthouse.

California's initiative system gives voters unusual direct power, though most measures are drafted by interest groups or lawyers, and historically only about one in three citizen initiatives pass. Proposition 13 in 1978, which capped and rolled back property taxes, became a national symbol of tax revolt. In 2022, Proposition 30, which sought higher taxes on top earners, failed 58% to 42% despite Democrats outnumbering Republicans nearly two to one.

"Sixty percent of Californians now reliably vote Democratic for statewide races, but that doesn't mean that they're really liberal on taxing, spending, or even many social issues," said Thad Kousser, a professor of political science at UC San Diego.

Several European countries, including France, Sweden, Finland, Denmark and Germany, repealed wealth taxes between 1997 and 2018 amid concerns about capital flight, avoidance and competitiveness.