California Democrats have endorsed Proposition 40, a proposed wealth tax targeting the state’s richest residents, but the endorsement has exposed a split within the party. Governor Gavin Newsom, former HHS Secretary Xavier Becerra, and several major unions oppose the measure, while SEIU United Healthcare Workers West backed it and offered concessions that were not accepted. Supporters say Prop 40 could raise roughly $100 billion for healthcare and public priorities; critics warn that wealthy residents and companies could leave, potentially creating negative net revenue over time.
California Democrats Back Proposition 40 Wealth Tax, Highlighting A Deep Party Split
An image collage containing 3 images, Image 1 shows Attendees cheering and holding signs that read
The California Democratic Party has officially endorsed Proposition 40, a proposed wealth tax aimed at the state’s richest residents. The decision has exposed a significant rift within the party: prominent Democrats and major labor groups have opposed the measure, while others have embraced it as a solution to mounting fiscal pressures.
Who Supports and Who Opposes
Governor Gavin Newsom declined to endorse Prop 40, and former U.S. Health and Human Services Secretary Xavier Becerra publicly opposed it. Several major Democratic-aligned public-sector unions — including the California Teachers Association and California Professional Firefighters — also lined up against the proposal. The initiative was placed on the ballot by SEIU United Healthcare Workers West, which has advocated for a billionaire tax to fund healthcare and other priorities.
Supporters of Prop 40 argue the wealth tax would affect only a few hundred billionaires while raising roughly $100 billion for healthcare and other public priorities. AFP via Getty Images
Negotiations, Offers, And No Deal
According to reporting, Newsom and his advisers tried to negotiate a compromise to remove the ballot initiative in favor of a less disruptive alternative. SEIU reportedly offered to reduce the proposed levy from 5% to 2%, which Newsom rejected. Instead, his team proposed roughly $7 billion in additional healthcare funding spread over several years. The union sought substantially larger healthcare investments and, by some accounts, additional labor-related concessions. With no agreement reached, voters will decide on Prop 40 at the ballot box.
Arguments For And Against Prop 40
Supporters say the wealth tax would affect only a few hundred billionaires and could raise roughly $100 billion for healthcare and other public priorities — a compelling proposition given California’s budget pressures and uncertainty over federal funding.
However, the "net present value" of losing billionaires as taxpayers in the Golden State may exceed the revenue generated by the tax itself. AP
Opponents argue that tax policy should account for how wealthy individuals and firms respond. They warn that a wealth tax could prompt high-net-worth people and businesses to relocate, reducing the state’s long-term tax base. Hoover Institution scholars Joshua Rauh and Benjamin Jaros have argued the initiative could produce negative net revenue if departures of wealthy taxpayers cause future income and business tax losses that outweigh the one-time receipts.
“If a one-time wealth tax drives even a modest number of wealthy residents to leave, the net present value of lost future tax revenue could exceed the tax’s projected receipts,” the critics contend.
Context: Migration And Competitiveness
California has already seen several high-profile departures. Elon Musk relocated to Texas; Larry Ellison and Google co-founders Larry Page and Sergey Brin have moved residence to Florida; and corporate headquarters for Oracle, Hewlett Packard Enterprise and Charles Schwab have relocated to Texas. Whether taxes were the sole motivation in every case is debatable, but the pattern underscores growing geographic mobility among wealthy individuals and corporations.
There is also a broader question about what message California wants to send. For generations, the state attracted entrepreneurs, investors, engineers and innovators from around the world. Getty Images for Economic Security Project, Inc.
Supporters of Prop 40 emphasize the immediate funding needs for healthcare and other services. Opponents emphasize the long-term risks to California’s ability to attract and retain entrepreneurs, investors and high-skilled workers — a key component of the state’s economic engine.
Author: Jon Hartley, policy fellow at the Hoover Institution and assistant professor of economics at the UT-Austin School of Civic Leadership.
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