Less than 2 months away from the midterm elections on November 3, the “Prop. 40” (also known as the “Wealth Tax”) has sparked serious divisions within the Democratic camp. After the California Democratic Party (with over 60%) announced its support for the proposition on August 3, on August 26, the San Francisco Democratic Party voted 17:4 against it, with 6 abstentions and 5 members absent, a rare occurrence.
The San Francisco Democratic County Central Committee amended its charter in May to allow endorsements on state-level propositions and take a stance completely different from the California Democratic Party. This made Prop. 40 the only state-level ballot measure on the San Francisco Democratic Party’s agenda, conflicting with the state party’s position.
Influential figures within the California Democratic Party opposing Prop. 40 include former House Speaker Nancy Pelosi, Governor Gavin Newsom, Governor candidate Xavier Becerra, former Speaker of the California Assembly Antonio Villaraigosa, and the California Teachers Association, which often supports Democratic proposals, also expressed opposition.
Prop. 40 was drafted by the Service Employees International Union United Healthcare Workers West (SEIU-UHW) to address the financial impact of Medicaid cost reductions.
The union proposes a one-time 5% wealth tax on billionaires with assets exceeding $10 billion, including corporate equities, securities, art, collectibles, and intellectual property. The funds raised will be used to subsidize California’s medical care (covering undocumented immigrants of all ages in California).
According to a report released by the National Bureau of Economic Research (NBER) in May, the proposal is expected to affect approximately 250 billionaires (with total assets of around $2.3 trillion), contributing about $3.2 billion in income tax annually; the top four billionaires (all of whom have moved out of California) collectively hold about 40% of the state’s billionaire assets. The report suggests that even if some billionaires choose to leave, the tax measure could still generate significant revenue.
The California Legislative Analyst’s Office (LAO) estimates that the proposal could bring in temporary tax revenues of hundreds of billions of dollars over several years. However, the assets of billionaires are closely tied to stock prices and subject to significant fluctuations, making it difficult to predict their tax avoidance strategies. If the proposal passes, the state government would need to invest tens of millions of dollars in building a collection system, and if billionaires leave California, it could result in a significant long-term decline in personal income tax revenue.
California’s tax revenue heavily relies on high-income earners, with the San Francisco Bay Area being a hub for numerous startup founders. Investor Mark Cuban pointed out on X platform that many startup founders have high net worth but their assets are primarily in stocks, fitting the “cash poor, stock rich” profile, meaning that even though the tax can be paid over 5 years, a one-time 5% tax burden will still create liquidity pressure.
The proposal sets January 1, 2026, as the benchmark date for California residency verification. In recent years, due to high individual income and corporate taxes, some billionaires have gradually shifted their residences or operational focuses to Florida or Texas, such as executives or founders of companies like Uber, Meta, Google, PayPal, Palantir, and Oracle, and the push for the “Wealth Tax” undoubtedly exacerbates this trend.
California’s 3rd District Congressman Kevin Kiley unequivocally opposes the wealth tax, while 17th District Congressman Ro Khanna expresses support. Khanna suggests allowing billionaires to pledge company shares to the state government for loans to pay taxes, but the billionaire camp is skeptical, believing that failure to repay could lead to risks of losing equity.
Among the 14 propositions in the November referendum, there are two oppositional proposals initiated by citizens, both supported and sponsored by multiple billionaires.
“Prop. 41” calls for a special audit of new state special taxes, prohibiting new taxes issued after January 1, 2026, from being exempt from state spending limits, to enhance fund utilization efficiency. “Prop. 42” prohibits new taxes on retirement assets, personal property, and savings, and limits retroactive taxation, directly countering the Wealth Tax.
Tom Hudson, Chairman of the California Taxpayer Protection Committee, supports Prop. 42, stating, “Voters supporting protection of their retirement and savings from the impact of new taxes is not surprising; historical experience shows that those taxes initially touted as ‘targeting the rich’ often end up affecting wage earners and middle-class families.” ◇