SACRAMENTO, CA — A new publication from the California Budget & Policy Center (Budget Center) examines Proposition 40, the Billionaire Tax Act, and what it could mean for California’s budget, public services, and long-term fiscal outlook.
The analysis finds Prop. 40 — a first-in-the-nation 5% tax on the wealth of California’s roughly 250 billionaires, who hold a combined $2 trillion — could generate tens of billions in one-time revenue to help offset deep federal funding cuts to health care, food assistance, and education. But because the proposal is unprecedented at the state level, the report cautions that the funding is temporary, does not support other vital public services or address Californians’ broader affordability challenges, and notes concerns about its unknown long-term economic impacts.
“California is facing difficult choices as federal funding cuts hurt Californians’ ability to access health care, food assistance, and other vital programs,” said Chris Hoene, executive director of the California Budget & Policy Center. “Our analysis shows how Proposition 40 could potentially generate substantial one-time revenue to help offset cuts to some services, while also examining the very real uncertainties and tradeoffs that come with implementing a novel tax.”
The report explains that California is expected to lose tens of billions of dollars in federal funding for Medi-Cal alone, and that approximately 1.3 million Californians are projected to lose health coverage by 2029-30 under recent policy changes in the “One Big Beautiful Bill Act.” Prop. 40 would dedicate 90% of the revenue raised to health care and the remaining 10% would be split among education and food assistance.
Budget Center policy experts examine key questions surrounding anticipated legal challenges and location decisions by billionaires. The report argues there is a strong rationale for taxing accumulated wealth in the Golden State, given growing wealth inequality, new federal tax cuts, and the ability of some ultrawealthy households to pay very little in income taxes as a share of their wealth. However, because a wealth tax is untested at a state level in the United States, it carries real uncertainty. Courts may strike down the measure or portions of it and conflicting measures could lead to years of litigation.
Because the tax is untested, estimates of how much revenue it would generate vary widely, and no one can say how billionaires’ location decisions might change or what that would mean for California’s economy and finances long-term.
“California needs additional revenue to support the well-being of its residents and offset the deeply harmful federal cuts,” added Hoene. “Voters will have to decide if the significant risks of Prop. 40 are worth the gamble, or if they’ll instead look to their legislative leaders to raise revenues through other sources next session.”
The analysis also examines Propositions 41 and 42, which seek to block the state’s ability to tax wealth, including invalidating Prop. 40, or impose significant administrative and procedural hurdles that would effectively produce the same result.
To view the full publication and additional budget measure analyses, visit calbudgetcenter.org/issues/ballot-propositions.
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About the California Budget & Policy Center:
The California Budget & Policy Center (Budget Center) is a nonpartisan research and analysis nonprofit advancing public policies that expand opportunities and promote well-being for all Californians. The Budget Center does not endorse or oppose ballot measures.
