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California will not become the first state to levy a wealth tax on its richest residents — at least not this election.
Voters rejected Proposition 40, a proposal to tax billionaires based on their net worth and financial holdings, by 52.8% to 47.2%, according to The Associated Press Monday. The measure had trailed behind for days before The Associated Press confirmed results.
Leaders for Service Employees International Union-United Healthcare Workers West, the union pushing the measure, seemed to concede the race minutes before the polls closed but vowed to try again in 2028 if California’s Legislature “fails to deliver a real solution” to fund healthcare hammered by recent federal law.
“That’s not a hypothetical. That’s our plan,” said Dave Regan, president of SEIU-UHW.
Election Day was projected to be an all-around defeat for the union, known for aggressively pursuing ballot measures. Voters defeated union-backed Proposition 44, an effort to control how clinics spend money. Proposition 42, a billionaire tax countermeasure prohibiting future wealth taxes, was leading Monday evening by 51.6% to 48.4%. That measure could get in the way of SEIU-UHW’s future plans to try taxing wealth again.
The billionaire tax would have generated $100 billion for healthcare and education through a one-time, 5% tax on billionaires, according to SEIU-UHW. Opponents of the measure celebrated its defeat.
“Proposition 40 was a reckless experiment conducted on our state’s economy with little regard for the harms it would cause,” according to a statement from Evan Westrop, a campaign strategist for No on Prop. 40.
The opposition campaign, which was backed by wealthy tech investors and healthcare organizations, argued the measure had already driven billionaires from the state and permanently harmed income tax revenue. On Monday they said the state still faces “enormous pressure” to find other ways to fund healthcare hit by federal cuts.
Billionaire tax divided Democrats
From the outset, Prop. 40 revealed divisions among the Democratic Party and galvanized some of Silicon Valley’s wealthiest executives to spend hundreds of millions to defeat it.
Gov. Gavin Newsom became one of its earliest opponents, attempting through backroom negotiations to keep it off of the ballot altogether. He endorsed the billionaire-backed counter measure, Prop. 42, designed to ban all wealth taxes in California and kill Prop. 40. Newsom, along with Democratic allies such as Planned Parenthood of California and California Teachers Association, argued a one-time tax would not solve the state’s fiscal woes and would drive wealthy residents out of state.
The California Democratic Party and California Federation of Labor Unions supported the initiative and opposed its counter measures, arguing the state needed more revenue to shield workers and everyday Californians from the effects of dramatic federal healthcare cuts expected to kick 2 million residents off of health insurance.
Lorena Gonzalez, former Assemblymember and president of the California Federation of Labor Unions, said Prop. 40’s failure puts even more pressure on state and federal lawmakers to backfill federal Medicaid cuts.
Supporters of Prop. 40 blamed its loss on billionaires vastly outspending the Yes campaign, which raised $33.5 million.
“That is incredibly corrosive and corrupting to our democracy and our political system, and that's been dominating the discussion here in California,” Regan said.
Billionaires poured hundreds of millions of dollars into the campaign to stop Prop. 40. Google co-founder Sergey Brin led the charge, publicly moving out of state and donating $102 million to Building a Better California, a political committee he founded to oppose the tax. The group has served as a passthrough for other billionaire donors to oppose Prop. 40, including by funding the counterpropositions 41 and 42. Collectively, ultra-wealthy opponents donated $378.4 million to oppose the billionaire tax.
In a statement, Abby Lunardini, a spokesperson for Building a Better California, said the billionaire tax threatened to limit revenue for all services in California, including healthcare, by driving economic interests out of the state.
“It was a lose-lose for California, and voters clearly agreed,” Lunardini said.
Ultimately, opponents’ efforts succeeded.
Polling just ahead of the election indicated falling support for Prop. 40 despite growing sentiment for taxing billionaires more in general. According to a UC Berkeley Citrin-POLITICO poll, 45% of voters believed in taxing billionaires more to fund public services compared to 35% who believed the state should prioritize keeping billionaires in state because of the tax revenue and jobs they generate — but just 46% favored Prop. 40.
Infighting among Democrats could have also contributed to Prop. 40’s demise, said John Matsusaka, an economist and direct democracy expert at USC, ahead of the election. Research shows money doesn’t buy people’s votes or values on core issues like abortion, Matsusaka said, but it can exploit uncertainty.
“People these days are very tribal. When your tribe is arguing, people start to listen to the counterarguments,” Matsusaka said.
This story has been updated.
This article was originally published on CalMatters and was republished under the Creative Commons Attribution-NonCommercial-NoDerivatives license.
