California voters, it seems, have once again decided not to mess with the fortunes of the state’s wealthiest residents.
With most ballots counted and the measure trailing by nearly six percentage points as of Wednesday morning, Proposition 40 — the so-called billionaire tax that drew national headlines — appears headed for defeat. At a moment when frustration with Big Tech and widening income inequality has reached a boiling point, California’s ultra-wealthy have come out on top yet again.
That outcome shouldn’t surprise anyone. Once Google co-founder Sergey Brin began bankrolling the opposition, backed by a seemingly bottomless campaign fund and not one but two competing ballot measures designed to undercut Prop. 40, the writing was on the wall. For all the national attention California received as a potential testing ground for taxing extreme wealth, the state already pays its own kind of tax for having so much of it: a political system increasingly dominated by money.
Prop. 40, put forward by SEIU-United Healthcare Workers West, would have levied a one-time 5% tax on stocks, bonds and other assets responsible for generating the largest fortunes, raising an estimated $100 billion to help offset federal cuts to Medi-Cal. Because it targeted the very holdings that make billionaires billionaires, the business community treated it as an existential threat. Brin and his allies spared no expense, ultimately raising $379 million to defeat it.
The strategy for sinking the measure wasn’t complicated: stir up economic anxiety and muddy the waters for voters.
Prop. 40’s own authors may have handed opponents their most effective weapon. A provision allowing a two-thirds supermajority of the Legislature to modify the tax — so long as changes stayed “consistent with and furthers the purposes” of the original law — became fodder for ominous campaign ads warning that lawmakers could eventually come for ordinary Californians’ retirement savings.
The claim spread quickly online, even though it would require an improbable alignment of seven in 10 legislators voting to expand a billionaire-focused tax onto everyday investors. Still, it helped build support for Proposition 42, one of Brin’s countermeasures, which would prohibit taxes on personal property and make a future wealth tax nearly impossible to pass. That measure was ahead in Wednesday’s count.
The argument that ultimately carried the most weight, though, was the fear that taxing billionaires might drive away the companies — and executives — that help prop up California’s economy, along with the tax revenue they generate.
Gov. Gavin Newsom, widely seen as eyeing a future presidential run, came out against the measure more than a year ago and later adopted similar language, warning of economic fallout. He has said he’d support a wealth tax if it came from Washington instead — a notably safer political stance, even if it’s arguably the right policy on paper.
But the idea that high taxes drive the rich out of state doesn’t hold up well under scrutiny. Cornell University sociologist Cristobal Young, who wrote an entire book on the subject — “The Myth of Millionaire Tax Flight: How Place Still Matters for the Rich” — has found that wealthy individuals talk about leaving far more often than they actually do. Yes, Brin, Larry Page and Peter Thiel have relocated. But they’re the exception, not the rule. Study after study, both in the U.S. and internationally, shows that tax increases rarely trigger mass departures significant enough to meaningfully dent a budget as large as California’s $300 billion spending plan.
Even so, those high-profile departures fueled a report from Stanford’s Hoover Institution suggesting the state could lose substantial income tax revenue and that Prop. 40 would generate far less than supporters claimed.
That analysis, however, assumes billionaires pay income taxes the way most working Californians do. They don’t. A 2021 investigation by ProPublica, based on leaked IRS records, revealed how many of the nation’s richest people — some of whom would have been subject to Prop. 40 — report minimal taxable income while building wealth through investments instead. Billionaires routinely exploit legal loopholes to grow their fortunes while paying comparatively little in taxes, often at lower effective rates than the people who work for them. The strategy is widely known as “buy, borrow, die.”
Even the modest amount billionaires do pay — an estimated $5.8 billion annually, according to Stanford researchers — is a drop in the bucket compared to the $123 billion California collects each year in income taxes overall.
If the slippery-slope argument or fears of economic flight weren’t enough to sway voters, there were plenty of other criticisms circulating: that the measure was poorly written, too narrowly focused on health care, or simply a step toward socialism.
I had my own doubts about Prop. 40 early on. But my skepticism faded after the Legislature once again put off serious budget reform and quickly shot down a campaign finance proposal from Assemblymember Chris Rogers of Santa Rosa. Modeled after a law in Hawaii, the bill aimed to limit unchecked corporate political spending.
At that point, the fight over Prop. 40 started to look less like a nuanced policy debate and more like a simple standoff between billionaires and everyone else. Opponents were pouring hundreds of millions of dollars into defeating a tax they could easily absorb, while many working Californians — myself included — are just trying to figure out how to afford a home and child care on two incomes.
Inequality is accelerating in California and across the country, and a growing number of Americans — particularly younger generations — now view concentrated wealth as a threat to democracy itself. As corporate money continues to saturate the political process, the ballot box remains one of the few tools voters have to push back.
Early returns this week suggest Proposition 4 may also be headed for defeat. That measure would have overturned California’s 1988 ban on using public funds to finance political campaigns — a policy designed to reduce the outsized influence of wealthy donors and give candidates more independence from big money.
Taken together, these results highlight one of California’s enduring contradictions: we talk about progress, yet rarely deliver meaningful structural change. We express discontent with extreme wealth’s grip on politics, yet hesitate to do anything about it. We pioneer transformative technology, then resist even modest guardrails meant to protect the public.
Having the largest economy among U.S. states doesn’t automatically make California a model for bold policymaking. It simply means the state is home to massive corporations and no shortage of brilliant minds. On issues like environmental policy and civil rights — areas where California often claims leadership — the reality is far more complicated, full of trade-offs and unresolved tension.
Prop. 40’s failure shouldn’t be read as a referendum on wealth taxes generally, nor should it discourage future efforts. California voters have, in fact, approved taxes on millionaires and high earners before — to fund mental health services and public education — without triggering the kind of exodus critics warned about. Proposition 3, which permanently extends a tax dedicated to school funding, officially passed early Wednesday morning.
If there’s a silver lining in all of this, it’s that billionaires like Brin fought this battle in full public view. The record-breaking spending, the attack ads, the political maneuvering — all of it played out in plain sight, and many Californians took notice, regardless of how they ultimately voted.
The state’s wealthiest residents may have dodged this particular tax. But voters are unlikely to forget how some of the richest people on the planet chose to respond when fairness itself was on the ballot.
Original source: CalMatters
