California voters rejected a ballot measure to levy a one-time 5% tax on billionaires, potentially complicating prospects for the federal wealth tax proposals pushed by progressives.
Voters turned down Proposition 40, the California wealth tax that would likely have generated tens of billions of dollars in additional revenue — of which 90% was intended for health care spending, with the remainder funding education, food programs and the administration of the tax itself.
But it faced heavy opposition. Billionaires spent historic sums on a campaign to defeat the bill, and it was expected to face legal challenges.
The California ballot measure was “an expected loss on Round 1” of pursuing a wealth tax, said Nabil Ahmed, who backed Proposition 40 as the senior economic and racial justice director at Oxfam America.
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“The fact that that got $400 million in response from billionaires and so much opposition — and at the same time got such huge support — it’s definitive progress in this moment,” Ahmed said. “We’re just getting started here.”
The failure of the wealth tax proposal in California, a bastion of progressive policymaking in the U.S., potentially signals trouble ahead for similar proposals at the federal level.
Even with a Democratic majority in both chambers of Congress, the party is not in agreement on a federal wealth tax. Progressives face an uphill battle getting their moderate colleagues on board in the next Congress, especially as the constitutionality of a federal wealth tax is hotly disputed.
Still, several Democrats said they remain committed to the policy.
Rep. Ro Khanna (D-California), who introduced legislation to implement a 5% annual federal wealth tax on billionaires, vowed last week to keep the idea alive.
“I’m proud of our efforts wherever we end up,” Khanna told reporters. “I am going to be right there, first in line supporting this in the next election cycle if it doesn’t pass this one.”
Sen. Ron Wyden (D-Oregon), the top Democrat on the Senate Finance Committee, indicated that his party will push full steam ahead on taxing billionaires.
“The committee will redouble its efforts to ensure billionaires pay their fair share and hold tax cheats accountable,” Wyden said in a statement Wednesday morning.
Billionaires spent big to avoid the California wealth tax in the first place, raising $379 million to defeat the proposal — an opposition campaign that could reemerge against a federal wealth tax.
More than $100 million of that money came from Google co-founder Sergey Brin alone. Brin’s anti-wealth tax Building a Better California coalition outspent the ballot measure’s supporters on advertising by more than 250 to 1, according to The Washington Post.
Brin is one of at least six billionaires who have made high-profile exits from California to avoid the wealth tax. Brin’s Google co-founder, Larry Page, PayPal and Palantir co-founder Peter Thiel and Uber co-founder Travis Kalanick have departed the state.
Economists say a federal wealth tax is unlikely to inspire billionaires’ flight from the U.S., however, because they would probably have to renounce their citizenship to avoid U.S. taxes.
Multiple measures to tax the wealthy were on the ballot on Tuesday. California voters also approved a ballot measure to indefinitely extend the state’s top marginal tax rate of 10.3% to 12.3% on individuals earning at least $361,000 past its 2031 expiration date. Voters in Washington state rejected an initiative to repeal a 9.9% income tax on households earning more than $1 million.
In Colorado, voters decided to replace the state’s flat income tax rate of 4.4% with a range of 3.7% to 8.4%. And North Carolina approved a constitutional amendment to lower the income tax cap from 7% to 3.5%. The ballot measures that will generate new revenue earmarked those dollars primarily for K-12 education.
“It’s not that people are against high-income taxes or high taxes, it’s just a wealth tax,” said Robert McClelland, a senior fellow at the Urban-Brookings Tax Policy Center.
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