As November’s election draws nearer, the fate of California’s Proposition 40, a one-time 5 percent wealth tax on billionaires, remains uncertain. Endorsed by the state Democratic Party, though opposed by Democratic Governor Gavin Newsom, the measure has accumulated a substantial campaign war chest and continues to draw support from about half of likely voters.
Whatever happens in November, Prop. 40 may prove an inflection point in the wealth-tax debate. The campaign has given new prominence to proposals, in California and elsewhere, to tax the assets rather than merely the income of the wealthy. Even if Prop. 40 fails, the debate it has intensified is unlikely to disappear.
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The California proposal, the brainchild of the SEIU-United Healthcare Workers West labor union, would tax the total wealth—including unrealized gains on investments such as stocks and bonds—of residents with more than $1 billion in assets. Prop. 40’s backers optimistically estimate that the tax would raise $100 billion over five years, primarily to offset federal cuts to the state’s Medicaid program, Medi-Cal. That heavy emphasis on health care has generated some opposition from groups otherwise supporting the measure—including the powerful California Teachers Association, which wants to see more of the money from taxing the rich go to public education.
More critical opponents point to Europe, where wealth taxes have failed to generate the expected revenues, in part because of taxpayer flight. Of the dozen European countries that once imposed broad net-wealth taxes, only three still do. France repealed its version after studies found that it had encouraged wealthy residents to leave.
The risk of flight may be greater for an individual U.S. state, since residents can relocate without leaving the country. One analysis of Prop. 40 found that the mere threat of the tax had already prompted billionaires controlling an estimated 38 percent of the state’s billionaire wealth to leave or reduce their California ties. Reports have documented moves by prominent tech figures, including Google cofounder Larry Page and venture capitalist Peter Thiel.
Even so, wealth-tax proponents are encouraged by polls showing broad dissatisfaction with how much the wealthy and corporations pay in taxes. This sentiment persists even though the top 1 percent of California taxpayers account for as much as 45 percent of state personal-income-tax revenue. Wealth-tax advocates counter that income taxes leave much of the appreciation of assets untaxed—hence the growing push to tax wealth itself.
“A wealth tax is popular among voters on both sides for good reason: because they understand the system is rigged to benefit the wealthy and large corporations,” Senator Elizabeth Warren said in early 2021, when she proposed a federal levy. The Biden White House subsequently argued that taxing income alone was inadequate because the wealth of the richest Americans rose much faster than their reported income. The administration responded with a proposed Billionaire Minimum Income Tax that would have treated unrealized capital gains as income for the wealthiest households. The measure failed to win congressional approval in 2022, and Republican control of the House after that year’s elections effectively ended its prospects.
The idea didn’t go away but instead shifted to the states. In Minnesota, the ruling Democratic-Farmer-Labor Party this spring introduced a bill that would impose a 1 percent annual levy on taxable wealth above $10 million. State officials estimated that roughly 5,600 taxpayers would be subject to the levy. The measure failed to pass in the 2026 legislative session but could return next year.
Illinois Democrats earlier this year introduced a “mark-to-market” tax that would require residents worth at least $1 billion to pay annual taxes on the appreciation of their assets, even before those gains are realized through a sale. Though the proposal did not advance this year, its sponsors could reintroduce it in the next legislative session.
Democrats in other states are getting on the bandwagon, too. In the Maryland House of Delegates, Democratic legislators introduced a bill that would apply a progressive wealth tax on the assets of those with a net worth above $1 billion, starting at 1 percent of assets and rising to 6 percent on those with more than $5 billion. Meanwhile, a Washington State bill with 15 Democratic cosponsors would establish a tax on “stocks, bonds and other intangible assets,” at a rate of $5 per $1,000 in assets for those with a net worth above $50 million. The bill, state officials say, would target some 4,300 taxpayers and raise money for public education.
With so many Democratic-led states entertaining wealth taxes, such levies are likely to be a prominent issue in the party’s 2028 presidential primary. California Governor Gavin Newsom, who made headlines opposing Prop. 40, has already said that he would rather see a federal wealth tax. Though a federal wealth tax poses significant constitutional questions, Newsom has resurrected talk of a billionaire minimum tax resembling Biden’s 2021 proposal.
There’s good reason for Newsom to prefer a federal wealth tax to a state one. As governor of one of the nation’s highest-tax states, he has seen the potential effects of tax differences on interstate migration. High-tax states have suffered substantial losses of residents and taxable income, while lower-tax states such as Florida and Texas have gained both. Without a federal wealth tax, state-level levies on net worth could widen these tax differences—and strengthen the incentive for wealthy residents to relocate.
So far, the migration of wealth and people away from high-tax locales hasn’t tempered Democratic enthusiasm for hiking local taxes. Advocates note that wealth taxes would affect relatively few people. But only a small number of departures could significantly reduce expected revenues and remove substantial wealth from a state’s economy. California’s Proposition 40 will test whether voters consider that risk worth taking.
