The Billionaire Tax Could Be Defeated by Two Other Tax Measures. Here’s How

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The Santa Barbara Independent republishes stories from CalMatters.org on state and local issues impacting readers in Santa Barbara County.

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California voters will soon decide whether to tax billionaires — but even if a majority says yes, the measure could still lose to either of two billionaire-funded measures designed to cancel it out. 

The billionaire-backed group Building a Better California designed two countermeasures to undermine the wealth tax and create multiple ways to defeat it.

Recent polling shows slim majorities of likely voters support not just the wealth tax, Proposition 40, but also Propositions 41 and 42, the measures aimed at killing it, according to the Public Policy Institute of California. 

“I don’t think that people at this point realize they’re direct countermeasures because there hasn’t been much said about 41 and 42,” said Mark Baldassare, polling director for PPIC.

Only one outcome can prevail. If Prop. 40 captures more votes than both 41 and 42, the wealth tax takes effect, voiding the countermeasures. If either 41 or 42 outpolls Prop. 40, the billionaire tax does not take effect.

What each measure does

Prop. 40 would levy a one-time 5% tax on California residents whose net worth exceeds $1 billion. The tax would apply based on residency as of Jan. 1, 2026 — a date that had passed when the measure qualified for the ballot — meaning billionaires who left the state afterward would still owe it. 

Most of the money generated would fund healthcare, while a smaller portion would go to education. Service Employees International Union-United Healthcare Workers West, the primary proponent and financial backer of the measure, says the tax would raise about $100 billion and is needed to backfill federal healthcare cuts passed last year. Conservatives argue California’s Medi-Cal program has grown too expensive, and new federal policies will help the state cut back. 

Prop. 41’s real target is Prop. 40: It would require new tax proposals passed after the start of this year to follow the state’s annual spending limit — a cap passed by voters in 1979 during a period of strong anti-tax sentiment that recent voter-approved special taxes have exempted themselves from. The billionaire tax would automatically violate this provision because it isn’t written to comply with the state spending limit.

Prop 41 would also require the nonpartisan state auditor to review new tax proposals before they reach voters and identify potential spending cuts in the programs they’d fund. If voters approve a tax, some of the revenue generated would pay for the audit; if a proposal fails, the state would be on the hook for the additional cost.

Prop. 42 would bar new taxes on personal property such as businesses, investments, retirement accounts, trusts and art collections — the exact things that Prop. 40 targets. It would also prohibit retroactive taxes, which would block a key part of Prop. 40: taxing wealth accumulated before the measure takes effect. Either provision alone is enough to nullify Prop. 40, if the wealth tax wins fewer votes than 41 or 42.

“Prop. 42 is a more direct anti-wealth tax proposal,” said Megan Jones, a tax attorney with Holland and Knight. The Legislature has tried unsuccessfully in the past to pass multiple wealth taxes, Jones said. If Prop. 42 passes, she said, it could limit lawmakers’ ability to try again in the future.

Who’s funding the fights

Backers of the billionaire tax — primarily SEIU-UHW — have raised about $31 million to pass the measure, mostly from union coffers. The California Democratic Party also supports the measure.

Gov. Gavin Newsom, along with doctors’ groups and clinics, opposes Prop. 40. Newsom argues the tax would not create a long-term solution to California’s budget woes and will drive wealthy people and businesses the state relies on through income taxes out of the state, further reducing revenue. 

Sergey Brin, the Google co-founder, and other billionaires are bankrolling the opposition campaign, ploughing more than $56 million into the No on Prop. 40 committee through a political organization called Building a Better California. That same group is the primary financial backer for both Propositions 41 and 42, raising $131 million to campaign for those measures. In total, the billionaire-backed group has gathered more than $187 million to try to defeat Prop. 40.

Baldassare said the billionaire tax’s backers will have a difficult time overcoming voter confusion about the three competing measures.