California Voters Reject Prop 40 Billionaire Tax in Midterm Defeat

Late Monday, The Associated Press declared that California voters had rejected Proposition 40, a proposed wealth tax on billionaire residents. The measure failed to pass despite the strong performance of Democratic candidates in other races during the recent midterm elections.

Gabriel Zucman, an economist at UC Berkeley who supported the tax, attributed the defeat to the massive financial resources deployed against the measure. Opponents spent nearly $400 million on the campaign, including funds for competing ballot initiatives. Zucman noted that this spending made the fight one of the most expensive in history. He stated that the money spent by billionaires was critical to the outcome. He observed that residents were heavily exposed to anti-tax arguments on television and in mailboxes, creating an uneven playing field compared to other elections where spending was high on both sides.

Joshua Rauh, a Stanford economist and critic of the proposal, offered a different explanation. He argued that the policy itself faced stronger resistance than proponents anticipated. Rauh compared support for the tax with support for Kamala Harris in the 2024 presidential election. He found that in the most progressive counties of the Bay Area, support for Harris was overwhelming while support for Proposition 40 was much lower. Rauh suggested that voters in these areas were more skeptical because they lived closer to the billionaires being taxed. He wrote that this proximity to the wealthy and their businesses made voters more likely to doubt the tax relative to their general political leanings.

The specific design of the tax also drew opposition from traditional Democratic allies. Proposition 40 was a one-time tax that allocated 90% of its projected revenue to health care. Only 10% was earmarked for food assistance and education. The California Teachers Association opposed the measure, arguing that it did not provide sustainable funding for schools. California Governor Gavin Newsom also opposed the state-level tax. He favored a national minimum tax instead, stating that wealth is movable and shops for the state with the lowest taxes.

Zucman believes the wealth tax movement will continue in the new Congress. He expects newly elected Democratic senators to prioritize curbing the influence of billionaires. Rauh also anticipates more proposals in the coming session but sees little chance of immediate passage with President Trump in the White House. He expects the 2028 election to better reveal public sentiment on the issue. Rauh noted that legal scholars disagree on whether a federal wealth tax would be classified as a direct tax, a status that triggers specific constitutional requirements regarding how revenue is distributed among states.

The debate over the results of Proposition 40 may foreshadow larger discussions within the Democratic Party. The 2020 presidential primary featured division on this issue, with Elizabeth Warren and Bernie Sanders championing wealth taxes while other candidates opposed them. The outcome in California suggests that the movement faces hurdles in both voter support and legal implementation.