California voters have turned back an attempt to make the state the first in the nation to impose a wealth tax on its richest residents — at least for now.
Proposition 40, which would have taxed billionaires based on their net worth and financial holdings, was defeated Tuesday with 52.8% of voters opposing it and 47.2% in favor, according to results confirmed by the Associated Press on Monday. The measure trailed for several days after Election Day before the outcome was finalized.
Leaders of the Service Employees International Union-United Healthcare Workers West, the union behind the measure, appeared to concede defeat even before polls closed, but vowed to bring the issue back in 2028 if state lawmakers fail to find what they called a genuine solution to fund health care programs strained by recent federal cuts.
“That’s not a hypothetical. That’s our plan,” said Dave Regan, president of SEIU-UHW.
The union, known for its combative campaign style, suffered a broader setback at the ballot box this cycle. Voters also rejected Proposition 44, a union-backed measure that would have placed new spending controls on health clinics. Meanwhile, Proposition 42 — a competing measure that would bar future wealth taxes in California — was leading with 51.6% support to 48.4% opposed as of Monday night. If it holds, that outcome could complicate SEIU-UHW’s stated plans to revisit a billionaire tax down the road.
Supporters of Proposition 40 said the one-time 5% tax on billionaires would have generated an estimated $100 billion for health care and education programs statewide. Opponents, meanwhile, celebrated its failure.
“Proposition 40 was a reckless experiment with our state’s economy, with little regard for the damage it would cause,” said Evan Westrop, a strategist for the No on 40 campaign, in a statement.
The opposition campaign — bankrolled by wealthy tech investors and health care organizations — argued the measure had already driven billionaires out of California and would permanently erode state tax revenue. Opponents acknowledged Monday that the state still faces significant pressure to find other ways to fund health care programs hit by federal funding cuts.
A measure that split Democrats
From the outset, Proposition 40 exposed deep rifts within the Democratic Party and galvanized some of Silicon Valley’s wealthiest executives to spend hundreds of millions of dollars to defeat it.
Gov. Gavin Newsom emerged as an early and vocal opponent, working behind the scenes in an unsuccessful effort to keep the measure off the ballot altogether. He went on to back Proposition 42, the billionaire-funded countermeasure designed to ban all wealth taxes in California and effectively nullify Proposition 40. Newsom, along with Democratic allies including Planned Parenthood of California and the California Teachers Association, argued that a one-time tax would not fix the state’s long-term fiscal problems and could push wealthy residents to leave the state.
The California Democratic Party and the California Labor Federation took the opposite stance, backing Proposition 40 while opposing the competing measures. They argued the state needed new revenue sources to shield workers and everyday Californians from the fallout of deep federal health care cuts expected to leave roughly 2 million residents without insurance.
Lorena Gonzalez, a former state assemblywoman who now leads the California Labor Federation, said the defeat of Proposition 40 only increases pressure on state and federal lawmakers to find a way to restore funding lost to Medicaid cuts.
Backers of Proposition 40 blamed their loss largely on being vastly outspent. The Yes on 40 campaign raised $33.5 million, a fraction of what opponents poured into defeating it.
“That is incredibly corrosive and corrupting to our democracy and our political system, and it’s been the dominant storyline here in California,” Regan said.
Billionaires spent hundreds of millions of dollars fighting the measure. Google co-founder Sergey Brin led the charge, publicly relocating out of state and contributing $102 million to Building a Better California, a political committee he founded to oppose the tax. That group became a conduit for other wealthy donors looking to fight Proposition 40, including funding for the competing Propositions 41 and 42. In total, ultra-wealthy opponents contributed $378.4 million to defeat the billionaire tax.
Abby Lunardini, a spokesperson for Building a Better California, said in a statement that the proposed tax threatened to shrink revenue for essential services statewide, including health care, by driving away the state’s wealthiest taxpayers and the jobs they support.
“This was a situation where California stood to lose either way, and voters clearly agreed,” Lunardini said.
In the end, the opposition’s strategy worked.
Polling conducted just before the election showed support for Proposition 40 softening, even as broader sentiment in favor of taxing billionaires more heavily remained strong. A UC Berkeley Citrin-POLITICO poll found that 45% of voters believed billionaires should be taxed more to fund public services, compared with 35% who said the state should prioritize keeping wealthy residents — and the tax revenue and jobs they bring — in California. Yet only 46% of voters ultimately said they supported Proposition 40 itself.
Infighting among Democrats may have also played a role in the measure’s defeat, according to John Matsusaka, a USC economist who studies direct democracy. Research shows that campaign spending rarely changes people’s minds on deeply held values, such as abortion, Matsusaka said before the election — but it can be highly effective at exploiting uncertainty and doubt.
“People today are very tribal,” Matsusaka said. “When your own tribe starts arguing with itself, people start listening to the other side’s arguments.”
This story has been updated.
Original source: CalMatters
