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CA
Prop 40
Billionaire Tax

Constitutional Amendment and Statute

Imposes One-Time Tax on Certain Taxpayers

Enacts a one-time state wealth tax of 5% on taxpayers and trusts with a net worth of more than $1 billion.

SPUR's Recommendation

The SPUR Board of Directors did not reach consensus on Prop. 40.

The proposed tax would provide one-time funds to meet the urgent health care and food access needs of millions of vulnerable Californians. Because it only applies to the wealthiest individuals with the most ability to pay, it is a progressive tax. However, the proposal fails on some good government principles. The tax’s one-time revenue would not fund ongoing health care and food programs. The state will need a permanent solution to the gaps H.R. 1 creates, not just a one-time fix. Furthermore, it could cost the state hundreds of millions in long-term revenue if billionaires flee in response. Prop. 40 has failed to gain consensus among many unions and health care advocates concerned about these potential negative impacts.

Given strong policy arguments for and against the measure, SPUR is not making an endorsement.

No Recommendation

What Prop. 40 Would Do

Proposition 40 would impose a one-time excise tax of 5% on individuals with a net worth of at least $1.1 billion in 2027. For individuals or trusts with a net worth between $1 billion and $1.1 billion, the tax rate would decrease by 0.1 percentage point for each $2 million in net worth below $1.1 billion.1 The net worth calculation would include publicly traded securities, private business entities, art, intellectual property, vehicles, personal property, grantor trust assets, and dependents’ assets that exceed $50,000. The tax would not apply to real estate, pensions, individual retirement savings, and Roth accounts with an aggregate value below $10 million. Taxpayers could spread their payments over five years, but they would have to pay more to do so.

The tax would apply to all billionaires with residence in California on or after January 1, 2026. Because the date is retroactive, it may be challenging for some taxpayers to evade it by moving.

For many billionaires, their sources of wealth include publicly traded stocks as well as shares of private companies. The tax measure would value public stock at market price as of December 31, 2026, and value private business entities based on book value, estimated profits, and percentage of ownership or voting rights. Taxpayers could appeal the methodology and submit their own appraisals of private assets, including privately owned businesses, art, and intellectual property.

Revenues from Prop. 40 would be restricted. The vast majority of the funds, 90%, would go to health care to address recent federal funding cuts to Medi-Cal and other social programs. The remaining 10% would go to food assistance and education programs. Prop. 40 would prohibit the state from cutting existing funding for these purposes.

Prop. 40 includes language exempting its revenues from the Gann Limit, which imposes requirements on how the state can spend General Fund revenues. If the state’s revenues exceed the Gann Limit — a dollar amount based on the state’s spending level in 1978–1979, adjusted for population and per capita income — half of revenues over the limit must be allocated to K–14 education and the other half returned to taxpayers.2 Because a 5% tax on California’s billionaires would most likely push state revenues over the Gann Limit, this exemption would be critical to directing all of Prop. 40’s revenues to healthcare and food assistance.

According to the Legislative Analyst’s Office, the tax would generate tens of billions of dollars in revenues. However, the exact amount is difficult to calculate because net worth fluctuates and some billionaires may find ways to reduce their liability.

The Backstory

Federal bill H.R. 1, known as the “Big Beautiful Bill,” was enacted in July 2025 and will make heavy cuts to critical social safety net programs across the state, including about $19 billion in annual funding losses to Medi-Cal. Medi-Cal covers more than one-third of the state’s population, including half of children aged 0 to 5, and nearly 15 million low-income Californians.3 Funding cuts are projected to accelerate hospital closures across California, particularly in rural areas. They are also expected to heavily impact food assistance programs such as CalFresh and the Supplemental Nutrition Assistance Program, which serve an estimated 5 million Californians.

The funding cuts are occurring as income inequality in California is increasing. According to the Public Policy Institute of California, the highest-income families in the 90th percentile earn 11 times as much as the lowest-income families in the 10th percentile.4 In recent years, inflation has hit low-income families the hardest, and households are struggling to pay for essential goods and services such as food, housing, transportation, and health care.5

California’s personal income tax structure is the most progressive in the country, with the highest income brackets paying the highest effective tax rates. In 2012, voters approved Prop. 30, which implemented tax rate increases on high-income earners, starting at $250,000 for single filers and $500,000 for married couples. Voters renewed this income tax structure with Prop. 55 in 2016, extending it to 2030. (This election’s California Prop. 3 would make that increase permanent.) Despite concerns that tax rate increases cause wealthy Californians to leave the state, studies have shown no evidence of such tax flight following previous income tax increases. Indeed, the state has lost lower-income and less-educated adults faster than higher-income and college-educated adults.6

SEIU-UHW, a public sector union representing health care workers, placed Prop. 40 on the ballot through a signature-gathering effort. The measure requires a simple majority (50% plus one vote) to pass.

Equity Impacts

Prop. 40 would be a highly progressive tax, applying only to individuals with more than $1 billion in net worth. California’s nearly 250 billionaires hold more than $2 trillion in wealth, up 48% from 2025 to 2026. Yet billionaires pay about 24% of their income in taxes, compared with 30% for the average taxpayer, and less than 1.5% of their wealth annually in federal, state, and local taxes.7

Additionally, the measure would address disparities in how Californians experience the tax system. Low-income families bear a disproportionate burden from high housing costs and regressive taxes such as property and sales taxes, while inherited wealth is not taxed in California, contributing to income inequality and persistent racial wealth disparities.8

The revenue raised would overwhelmingly support lower-income Californians by funding Medi-Cal, food assistance, and public education. These benefits have a racial equity dimension: According to U.S. Census data, low-income families in California are much more likely to be Latino or Black, while most high-income families are white or Asian. Prop. 40 would therefore raise revenue exclusively from the state’s wealthiest residents while directing it to services disproportionately relied on by lower-income, Black, and Latino Californians.

Pros

  • Implementing the proposed tax would generate tens of billions of dollars in revenue to mitigate the drastic federal funding cuts to healthcare, food assistance, and other services for low-income Californians, allowing many public and rural hospitals to remain open.
  • Revenues from the tax would disproportionately benefit low-income Californians who depend on Medi-Cal and SNAP benefits.
  • The highly progressive wealth tax would apply only to billionaires, who experienced enormous wealth gains last year. Because the tax is retroactive and one-time, it would be difficult for billionaires to evade.

Cons

  • Prop. 40 would fill a budget deficit with one-time funds and would not address the structural deficit left by federal funding cuts.
  • A potential exodus of billionaires in protest could reduce personal income tax revenue over time, a major ongoing source of state revenue.
  • California already has the highest income tax rate in the United States, and a new tax on private assets could strengthen the perception that the state is not a competitive location for individuals and companies.
No Recommendation on Prop 40 - Billionaire Tax
Footnotes

1 Individuals with a net worth of $1.08 billion would pay 4%; those with $1.06 billion would pay 3%, those with $1.04 billion would pay 2%, those with $1.02 billion would pay 1%, and those with $1 billion or less would pay no tax.

2 Kayla Kitson, Scott Graves, and Jonathan Kaplan, “How the Gann Limit Threatens Ongoing Investments for Californians,” California Budget and Policy Center, December 2022.

3 Children Now, Medi-Cal: The Foundation of California Kids’ Health & a Bedrock of Our State Economy, January 2025.

4 Tess Thorman and Daniel Payares-Montoya. “Income Inequality in California,” Public Policy Institute of California, April 2026.

5 Jeff Horwich, “Lower Income, Higher Inflation? New Data Bring Answers at Last,” Federal Reserve Bank of Minneapolis, 2024.

6 Hans Johnson and Eric McGhee, “Who’s Leaving California—and Who’s Moving In?” Public Policy Institute of California, January 21, 2026.

7 Akcan Balkir, Emmanuel Saez, Danny Yagan, and Gabriel Zucman, “How Much Tax Do US Billionaires Pay? Evidence from Administrative Data,” Working Paper No. 34170, National Bureau of Economic Research, August 2025; Jasper Boll et al., “California Billionaires: Wealth, Taxes, and Wealth Tax Revenue Estimates,” Working Paper No. 35218, National Bureau of Economic Research, May 2026, 10.

8 Kayla Kitson, Promoting Racial Equity Through California’s Tax and Revenue Policies, California Budget and Policy Center, April 2021, 5; Kayla Kitson, Tax Breaks: California’s $60 Billion Loss, California Budget and Policy Center, January 2020, 6–8, 10–11.