For the architects of the novel billionaire tax on the ballot in California this week, the strategy was supposed to be relatively straightforward.
First, harness widespread frustration with wealth inequality to pass what supporters believed would be an overwhelmingly popular ballot initiative. Then use California as an example to the country that a tax on wealth could work, propelling the idea further into the mainstream and eventually into federal law.
That vision could still come to at least partial fruition if Proposition 40 passes. But the path through California to a federal wealth tax, a progressive dream for years, now looks like it could be a circuitous one, if not a dead end.
Polls have shown limited support for Proposition 40, which would charge a one-time, 5 percent tax on the wealth of Californians worth more than $1.1 billion. Some recent surveys suggest the ballot measure may even fail. Billionaires have blanketed California’s airwaves with ads claiming that the tax could expand to apply to everyone.
Democrats and labor unions, meanwhile, are divided over the tax. Groups representing teachers, doctors and firefighters warn that Proposition 40 could wind up harming the state budget in the long run if it drives entrepreneurs away from California. Many Democrats across the country have kept their distance from the proposal, as they assess its popularity and the potential problems with a federal version of a wealth tax.
However the Nov. 3 vote turns out, the proponents and opponents of the billionaire tax agree that its importance goes well beyond California. At stake is a potential revolution in U.S. taxation. The once-radical concept of taxing wealth may soon gain a foothold in the nation’s most populous state. Or it may be dealt a surprising setback in a popular vote, puncturing the hope that such a policy would draw broad support.
Mr. Sanders was joined by Jane Kim and Randy Villegas during a stop on his ‘Fighting Oligarchy: Where We Go From Here’ tour in Bakersfield, Calif. on Oct. 4, 2026.Credit…Kyle Grillot for The New York Times
“The whole country is watching what you are doing here,” Senator Bernie Sanders, a Vermont independent, told a crowd of supporters in California last month.
For decades, the United States has relied on taxes on income — largely the wages people earn working — to fund federal and state governments. Money made on stocks, bonds and other holdings is generally only taxed when the assets are sold, and the paper gains become cash income. But as the nation’s richest people have seen the value of their financial portfolios soar, progressive policymakers have sought to tax their assets before they are sold, by creating a wealth tax.
During the last competitive Democratic presidential primary, in 2020, progressive candidates such as Mr. Sanders and Senator Elizabeth Warren, Democrat of Massachusetts, made wealth taxes a central part of their platforms. President Joseph R. Biden Jr. eventually endorsed a plan, called the billionaire minimum income tax, that would have taxed unrealized gains, a form of wealth taxation. Donors to Vice President Kamala Harris’s campaign pushed her to drop the Biden plan once she took over the Democratic ticket in 2024.
Passage of Proposition 40 in California, especially by a healthy margin, could make the idea of a wealth tax more palatable to Democrats who run in the party’s next presidential primary. Some progressive candidates are likely to adopt a wealth tax as part of their platform in any case. But a strong showing for the idea in California could convince others to put a version of the idea on their agendas.
A loss or even a narrow victory could have the opposite effect. An internal document from a group opposing the tax said it seeks to “chill wealth tax efforts nationally” by defeating Proposition 40, according to previous reporting by The New York Times.
Some potential Democratic presidential candidates have already taken a stance on Proposition 40, including Representative Ro Khanna of California, who has campaigned in favor of the tax, and Gov. Gavin Newsom of California, who has opposed it. Mr. Newsom has said he supports raising other taxes on billionaires at the federal level.
Mr. Newsom opposes the tax.Credit…Jamie Kelter Davis for The New York Times
“If Prop. 40 goes down in California, I think it’s going to make, not all of the candidates, but it’s going to make a few of the 2028 candidates rethink how they slot that into their presidential policy agenda,” said Zach Moller, the senior director of the economic program at Third Way, a center-left think tank. “If it goes the other way, maybe that makes it seem like it’s a better idea.”
A wealth tax would be a fundamental change in the tax system, raising complicated questions for tax collectors. That includes how to value holdings, like privately owned businesses, that may not have an existing price. Even for billionaires who derive their wealth from the publicly traded stocks of companies they founded, collecting the tax could be complicated if they do not have enough cash to pay it without selling many of their holdings.
The economists and tax lawyers who crafted the California billionaire tax believe that their design has resolved those issues, creating a blueprint for federal and other state policymakers.
“If California enacts a wealth tax, it will begin raising substantial revenues by 2027, and by 2028 we will have actual numbers and data and experience,” said David Gamage, a tax law professor at the University of Missouri who helped draft the tax. “And it will be a lot harder for the opposition to make all these absurd claims, because there will be real experience on the ground we can look to.”
But there are several key differences between the California billionaire tax and what a federal wealth tax could look like. Proposition 40 is a one-time tax, while a federal version would likely be an annual levy. Then there is the fact that much of the revenue from the California billionaire tax would be dedicated to backfilling cuts to the state’s Medicaid program, a consequence of a law President Trump signed last year.
Funneling the receipts from the billionaire tax toward a specific purpose, rather than feeding them into the overall budget like a federal wealth tax likely would, has fractured the idea’s support in California. Some unions have objected to the fact that the tax would not help with the state’s other funding needs. And the head of the health care workers union that sponsored the ballot initiative, Dave Regan, is a polarizing figure in California politics.
Lee Haywood handed out flyers while campaigning for Propoisition 40 in Berkeley, Calif., in October.Credit…Minh Connors for The New York Times
As a result, some progressives in Washington appear to be hedging their bets about the outcome of the referendum. Opponents of the tax have also put other initiatives on the ballot that could cancel out Proposition 40 even if it passes, further scrambling the potential meaning of the results next week.
“The unique nature of this tax design, the unique nature of California—I don’t know how much people in other states or at the federal level will glean from the outcome here, either for good or bad,” said Bharat Ramamurti, who worked in Mr. Biden’s White House and is a former aide to Ms. Warren.
The California plan and a potential federal wealth tax also differ in how easy they would be to avoid — and how susceptible they are to legal challenges.
State-level taxes are comparatively easy to escape by moving to another state, while a federal wealth tax could apply to U.S. citizens even if they leave the United States. Several high-profile billionaires, including the Google co-founder Sergey Brin, took steps to leave California before the tax’s residency deadline at the start of the year. Those departures could reduce the revenue collected by the tax, as well as leave California without the income taxes that the departed billionaires would have paid the state over time.
Josh Rauh, an economist at Stanford’s Graduate School of Business, has estimated that the billionaire tax could end up costing California more money than it generates. Mr. Rauh, who opposes Proposition 40, said in an interview that he thinks the flight of billionaires, as well as the possible legal challenges to the tax, would ultimately set a bad precedent for wealth taxation, if it passes.
“I don’t think it’s going to be as easy as proponents might think to put in a wealth tax and collect the wealth,” he said.
A federal wealth tax, while not facing the same challenge of potential tax flight, would come with an arguably more serious risk of legal challenges. Progressives and other liberal tax experts worry that the current, conservative-led Supreme Court would rule that a federal wealth tax is an unconstitutional “direct tax.” Those concerns have only grown more acute after several Biden initiatives, including the cancellation of student debt, were thrown out by the Supreme Court. Some, like Mr. Gamage, still believe a wealth tax would be constitutional.
Whether it’s through a wealth tax or another mechanism, Democrats in California and on the presidential campaign trail will keep trying to raise taxes on the rich. Lorena Gonzalez, who leads the California Federation of Labor Unions, said the campaign in California had brought attention to the concentration of wealth and power among billionaires, setting the stage for more proposals to address the stratification of the economy.
“I mean, shoot, put a bigger tax on yachts,” she said. “The point is: Should we tax billionaires? Should we do some massive taxes on billionaires to unrig the economy? Ultimately that’s not going to stop with this vote.”
