California’s billionaire class spent heavily this election cycle to protect their fortunes from future taxation — and it appears to have paid off.
Proposition 42, a measure barring new taxes on personal assets such as business holdings, intellectual property and investment portfolios, was holding a comfortable lead of 54% with roughly 60% of expected ballots counted. The measure was one of two placed before voters by tech billionaires specifically to blunt the impact of a separate, closely watched proposal to tax the state’s wealthiest residents.
That companion measure, Proposition 40, would have created California’s first tax on the assets of the ultra-rich. Its backers have said they intend to keep fighting for the idea, but Prop. 42’s apparent victory puts them in a tougher spot going forward.
According to the nonpartisan Legislative Analyst’s Office, Prop. 42 will make it more difficult for state lawmakers to raise new taxes in the future and could shrink state revenue, though the office said the exact financial impact is hard to predict.
The outcome also forecloses an option for California Democrats who have said for years that the wealthy should contribute more to state coffers but took issue with how Prop. 40 was structured. With Prop. 42 now part of the state constitution, those lawmakers won’t be able to draft an alternative wealth tax of their own.
Supporters of Prop. 42 — including public safety labor groups such as California Professional Firefighters and the Peace Officers Research Association of California — framed the measure in campaign mailers and digital ads as a shield for everyday Californians’ pensions and retirement savings. In reality, the $159 million campaign was financed almost entirely by billionaires. Gov. Gavin Newsom also backed the measure.
“These Californians backed the strongest protections available to protect their hard-earned life savings from double taxation,” said Nathan Click, a spokesperson for the Yes on 42 campaign.
Backers of the wealth tax, led largely by the Service Employees International Union-United Healthcare Workers West, dispute that characterization. They note that Prop. 40 was never aimed at typical retirement accounts, with one narrow exception: Roth IRAs holding more than $10 million.
Even with the setback, tax proponents say they aren’t giving up. On election night, they described their effort as the start of a broader push to make taxing billionaires part of the national political conversation.
“We’re going to call out these economic royalists. We’re going to tax them the way they need to be taxed, and we’re going to invest in Medicare for all and free child care,” said Rep. Ro Khanna, D-Santa Clara, a leading supporter of the wealth tax measure.
Prop. 42 blocks any new wealth tax — whether enacted through ordinary legislation or a constitutional amendment — but the prohibition isn’t necessarily permanent. Voters could reverse it down the road through another ballot measure.
“That’s not set in stone,” said Lorena Gonzalez, president of the California Labor Federation. “We have the ability to change things.”
Still, despite Democratic supermajorities in both chambers of the Legislature, lawmakers have never gotten far with proposals to tax assets. Several attempts by progressive legislators since 2020 have failed to clear even a single committee vote.
The timing adds pressure to an already strained state budget. California has run deficits for four straight years despite growing revenues, forcing cuts to health care programs, delayed payments to schools and new taxes elsewhere. Looming federal cuts to Medicaid are expected to add further strain, putting Governor-elect Xavier Becerra in a difficult position as patient advocates and health care workers push him to make up the difference. Becerra has said he’s open to new taxes in general but opposed the billionaire wealth tax specifically.
Some Democratic lawmakers continue to argue that the state should instead pursue revenue by closing corporate tax loopholes, while Republican legislators maintain that California’s budget troubles stem from excessive spending rather than insufficient revenue.
Senate Budget Committee Chair John Laird, D-Santa Cruz, said he never anticipated a scenario where Prop. 42 — crafted specifically to counteract the billionaire tax measure — would end up passing independently of it.
Laird said he doesn’t expect the measure to have an immediate impact on the state budget.
“We will want to just drill down to see if it has any unintended consequences on the budget, but I think we still have to make that determination,” he said Wednesday.
Click, the Yes on 42 spokesperson, said the measure was written narrowly and leaves lawmakers plenty of other revenue-raising tools, including taxes on business sales, corporate income, health care providers and insurance.
“Existing funding for schools, public safety, roads, health care, etc. is untouched by this measure,” he said.
But Kayla Kitson, a senior policy analyst with the California Budget and Policy Center, flagged concerns about another piece of the measure — one that prohibits lawmakers from applying new taxes retroactively, except during a declared budget emergency.
Kitson noted that retroactive tax dates are a common tool used by state and federal governments alike, often to prevent people from rushing to avoid a new tax before it takes effect, and to help raise money quickly when needed. She detailed those concerns in a blog post in September.
Under the new restrictions imposed by Prop. 42, she said, the state could lose out on months of potential tax revenue in future emergency situations.
Original source: CalMatters
