The Question

Should a one-time 5% wealth tax be imposed on billionaires in California to pay for healthcare services, food assistance, and education programs?

The Situation

California, like the rest of the United States, has traditionally taxed income rather than wealth. Income is money people earn over time, such as wages, salaries, tips, or rental income. Wealth is the total value of what a person owns, including savings, investments, real estate, and other assets, minus any debts. Wealth can provide financial security during emergencies and often generates additional income through investments or rental properties. California already taxes certain forms of wealth through property taxes on homes and commercial real estate. However, those taxes apply only to specific property, not to a person’s total net worth. A wealth tax would instead be based on the total value of all assets after debts are subtracted.

In 2025, Congress passed H.R. 1, the One Big Beautiful Bill Act, which reduces federal funding for several safety-net programs. When fully implemented on January 1, 2027, California is expected to lose about $30 billion annually in Medi-Cal funding while also facing up to $9.5 billion in new administrative costs. Prop 40’s stated purpose is to help fill the budget hole that was created by passage of H.R. 1. Voters signed petitions to place this on the ballot. If Prop 40 passes it will change the California Constitution to allow a one-time wealth tax. 

The Proposal

Proposition 40 would create a one-time 5% wealth tax on individuals and certain trusts with more than $1 billion in covered assets. The tax is expected to affect about 200 taxpayers and is estimated to raise tens of billions of dollars over five years. A simple majority vote is needed for the measure to pass.

The tax would apply to California residents as of January 1, 2026, who had a net worth above $1 billion on December 31, 2026. All California taxpayers would be required to report on their 2027 state tax return whether their net assets exceeded $1 billion. Those meeting the threshold would have to file additional forms, provide appraisals when needed, and calculate the tax they owe.

Most types of wealth would count toward the $1 billion threshold, including stocks, bonds, privately owned businesses, art, collectibles, and intellectual property. Real estate would not be included because it is already subject to property taxes. Most retirement accounts would also be exempt, although very large Roth IRA accounts above $10 million and some pension benefits could be included.

Property would generally be valued at fair market value, and publicly traded investments would use their market price on December 31, 2026. Certain debts, such as loans from relatives or loans that are not at market terms, could not be used to reduce taxable wealth. The measure also includes rules that count many trust assets and certain recent asset transfers toward a taxpayer’s wealth to discourage avoiding the tax. Taxpayers could pay the tax all at once or over five years, with interest on unpaid balances. Significant penalties would apply for understating assets.

Revenue from Prop 40 would be placed into two new funds. After administrative costs, 90% of the revenue would support health care programs, including Medi-Cal, hospitals, and health care providers. The remaining 10% of revenue would support education and food assistance programs, such as public schools, CalFresh, and school meal programs. The measure states that these funds cannot replace existing state funding for those programs.

Prop 40 exempts its revenues from constitutional requirements for school funding, budget reserves, and the state spending limit.

Fiscal Effects

The Legislative Analyst’s Office estimates Proposition 40 would raise tens of billions of dollars over several years, although revenues would vary with asset values. The measure could reduce future income tax collections if some wealthy residents leave California. The state would also incur implementation and enforcement costs, funded by the new wealth tax revenues.

Supporters Say

• Healthcare funding has been cut by the federal government to give billionaires tax breaks, eliminating health care coverage for over a million Californians and doubling health insurance premiums for millions more. 
• Billionaires should pay their fair share and lessen the burden on the middle class. 
• Raises about $100 billion to replace lost federal dollars and protect essential services without raising taxes on the middle class, small businesses, or homeowners.

Opponents Say

• The tax will undermine California’s business climate and hurt the state’s budget by driving critical tax dollars out of state.  
• This will not be a temporary tax as it is trying to solve a problem that is permanent as federal funding dollars continue to fail to meet California’s spending on health care. 
• California depends heavily on wealthy taxpayers, and they are moving away because of over taxation, shrinking California’s tax base and weakening the economy.