Prop 40 and the Great Billionaire Exit: What a One-Time 5 Percent Wealth Tax Teaches California About Mobility

Six billionaires reportedly left before the residency deadline, and the revenue the union counted on left with them

Surfers understand something that central planners keep forgetting: you cannot hold a wave in place. It moves, it breaks where conditions allow, and anyone who tries to charge for it at one spot discovers that the lineup has relocated down the beach. California’s proposed billionaire tax, which appears on the November 3 ballot as Proposition 40, is a case study in that principle. It would impose a one-time 5 percent tax on the net worth of California residents worth more than $1 billion, with the proceeds going mostly to health care, according to KQED’s ballot guide and the detailed summary of the initiative. The people it targets have already begun to move.

What the Measure Does

The initiative was sponsored by the healthcare workers union SEIU-UHW, which has contributed nearly $10 million to the campaign. It applies to billionaires who lived in California on January 1, 2026, and it funds state health programmes including Medi-Cal, food assistance and public education. Backers submitted about 1.6 million signatures, and the secretary of state certified 980,438 valid ones on June 17, well above the 874,641 required. Negotiations over a smaller 2 percent alternative failed before the June 25 withdrawal deadline, so the full 5 percent measure stays on the ballot.

The sponsor estimates it would raise about $100 billion. The Legislative Analyst’s Office offers a far more cautious account, describing a temporary increase of up to tens of billions of dollars over several years, offset by an ongoing loss of income tax revenue of hundreds of millions of dollars or more per year. The Hoover Institution estimates a net effect that is negative by almost $25 billion. The gap between $100 billion and a negative number is the entire argument.

Who Has Already Left

About 214 billionaires live in California. Six reportedly left before or around the deadline, including Peter Thiel, Travis Kalanick, Larry Page and Sergey Brin. Those six are estimated to account for $26.775 billion in tax, more than a quarter of the sponsor’s $100 billion estimate. If that is correct, a quarter of the headline revenue was gone before a single ballot was cast. The residency cutoff of January 1, 2026 was designed to prevent exactly this, but the reported moves suggest that the combination of a looming tax and an open border between states is difficult to police.

The Economists Disagree, and That Matters

Gabriel Zucman and Emmanuel Saez, the economists behind the initiative’s design, argue that even a complete departure of the targeted billionaires would take 25 years for lost income taxes to exceed the revenue the one-time levy raises. Kent Smetters says the union’s estimate ignores the ways people move or reclassify wealth, and Enrico Moretti calls the revenue estimate way overly optimistic. Supporters include Bernie Sanders, Ro Khanna, Thomas Piketty and the Democratic Socialists of America in California. Opponents include Governor Gavin Newsom, a long list of Democratic office seekers, the California Chamber of Commerce, the California Hospital Association, California YIMBY and the Howard Jarvis Taxpayers Association.

It is worth pausing on the coalition against the measure. It includes the governor of the state and several prominent Democrats, along with groups that normally have nothing in common with the anti-tax right. The California Teachers Association and Planned Parenthood Affiliates of California joined the opposition in June. These are not libertarians. They are institutions that depend on a stable revenue base and fear that a one-time windfall would be followed by a permanent hole.

The Poison Pill Measures

Opponents led by Sergey Brin and Eric Schmidt, through a committee called Building a Better California that raised more than $80 million in the first quarter, qualified two counter-measures. Proposition 41 requires audits of programmes funded by new special taxes and blocks new taxes from exempting their revenue from the state spending limit. Proposition 42 is a constitutional amendment barring future asset and wealth taxes and most retroactive taxes. The measures interact, so the relative number of yes votes among Propositions 40, 41 and 42 matters as much as whether each passes.

The Polls

Support has narrowed. Early surveys showed comfortable leads, such as 60 percent to 24 percent in one January poll. A Public Policy Institute of California survey in May had 54 percent in favour and 45 percent against. By mid-June, one poll had it at 47 to 43 and another had it behind, 41 to 47. A narrowing lead on a measure that most voters will not personally pay for is a notable thing. It suggests that the exit stories, the revenue disputes and the opposition from fellow Democrats are registering.

The Libertarian Reading

The principled objection is not that billionaires deserve sympathy. It is that a tax on stock rather than on flow, applied to people whose assets are illiquid shares in companies, requires the state to value unrealised wealth, to force sales or loans and to rely on residency rules that can be defeated by a plane ticket. It also creates a precedent. A one-time tax is easy to describe and hard to keep one-time, as every level of government that has tried a temporary levy knows. The Gann limit, the state spending cap, is a constitutional restraint the measure tries to sidestep, which is why Proposition 41 targets that exemption specifically.

The practical objection is simpler: you cannot tax people who are no longer there. California already relies heavily on a small number of high earners for its income tax revenue, and every departure removes a slice of the base. Mobility is the lineup moving down the coast. Our London pages have followed the same drama on the other side of the Atlantic, in stories about billionaires leaving the country over taxes, a billionaire losing confidence in Britain and the bungled wealth tax debate. The arguments are strikingly similar and so are the outcomes. See also our guide to political coverage and, for the American side, Bohiney Magazine.

What Voters Should Ask

Before voting on Proposition 40, residents should ask three questions. What revenue does the nonpartisan analyst, not the sponsor, expect? What happens to the programmes it funds when the one-time money runs out? And what is the cost of the signal it sends to the people who start and fund the companies that employ millions of Californians? Wherever one lands, the answers should come from the numbers, not the slogans.

For lighter reading after a heavy ballot, The Daily Mash is always open.

SOURCE: bohiney.com