California’s Proposition 40, the one-time 5% tax on billionaires’ assets that would have been the nation’s first state wealth tax, was decisively rejected by voters — and the postmortem has turned into a public argument between the two economists who studied the measure and reached opposite conclusions about what it would do to the state’s economy. The outcome settles the policy question for now and hands California businesses a rare instance of certainty: the tax code they navigated in October is the tax code they will keep.
UC Berkeley economist Gabriel Zucman, the intellectual force behind modern wealth-tax proposals, attributes the loss to spending. Opponents poured almost $400 million into fighting the measure, including contributions to competing ballot measures, making it among the most expensive initiative fights in California history. Zucman argues the imbalance was unlike candidate races elsewhere: on Prop 40, billionaires spent more than $300 million on advertising against “negligible sums” on the other side, so voters heard only the anti-tax case. In competitive Senate and governor races, spending was high on both sides even if uneven.
Stanford’s Joshua Rauh, a prominent critic, answers that the ad-blitz explanation doesn’t fit the geographic pattern. Comparing support for the tax to Kamala Harris’ 2024 performance, he finds the defection gap widest in the most progressive Bay Area counties — places where voters were most likely to work for, with or near billionaires, and to have watched wealth relocate to Texas or Florida. “The simple reading is that proximity to the people being taxed, and to the businesses they fund, made voters more skeptical of the tax relative to their baseline politics,” Rauh wrote, concluding that even California’s electorate “isn’t ready for a wealth tax.”
The defeat also caps, for now, a funding question that mattered to hospitals and health systems across the region. Prop 40 earmarked its projected revenue to backfill federal health care cuts, a design that drew opposition from groups that might otherwise have backed higher taxes on the wealthy. Its failure means California budget writers must find other means to cover those federal shortfalls, likely through the normal legislative process where Los Angeles’ delegation will fight for medical facilities and county health funding.
The political lesson is already being weighed nationally. Wealth taxes divided Democrats in the 2020 primary between Elizabeth Warren and Bernie Sanders on one side and Cory Booker and Michael Bloomberg on the other, and President Biden declined to pursue Warren’s proposal early in his term. NPR notes the fight could foreshadow the next Democratic presidential primary debate; for business interests in California, the immediate effect is that the state’s famously high but familiar tax structure stands, and no new levy on founder wealth will appear on 2027 returns.
What the campaign revealed is subtler. Even in a state where Democratic candidates won everywhere, the specific architecture — a one-time levy on unrealized asset value — could not assemble a majority. Opponents’ ads focused on asset valuation disputes, exemptions complexity, and the risk of capital flight; proponents countered that 0.07% of Californians would pay and that revenue was desperately needed. Voters’ answer suggests they believed the skeptics, or at least doubted the valuation math enough to leave the status quo in place.
For Los Angeles’ business community, the practical read is relief without celebration. The measure’s opponents now hold a mandate of sorts to argue California is competitive on taxes; public unions that spent real capital on the campaign will seek alternatives; and the billionaires who bankrolled the defense remain, with their companies and payrolls, in Los Angeles County. The next test of the state’s appetite for taxing concentrated wealth will arrive through the Legislature rather than the ballot — a slower, more negotiable route that typically produces something less sweeping than what Prop 40 promised.
