California voters will decide in the US midterm elections whether to approve the Proposition 40 wealth tax, a one-time 5% levy on the net worth of the state's billionaires, according to the BBC.
The measure aims to raise $100bn (£75bn) to make up for federal funding cuts to California's healthcare system. Supporters tie those cuts to President Donald Trump's tax and spending bill.
Polling shows a close contest. Francesco Trebbi, a public policy professor at the University of California, Berkeley, said the vote would test what he described as a first. "I believe this is the first billionaire tax - meaning a wealth tax that is targeting a very extreme percentile of the wealth distribution," he told the BBC.
What California's Proposition 40 would tax and pay for
The proposition would apply once to all of California's billionaires. The state has a little more than 200 of them, the BBC reported. Its ultra-wealthy residents include Oprah Winfrey, Mark Zuckerberg, Kim Kardashian and George Lucas.
The money would go toward the state's healthcare system. Suzanne Jimenez is chief of staff for Service Employees International Union-United Healthcare Workers West, which helped lead the initiative. She called the measure a "short-term solution" for federal funding cuts resulting from Trump's sweeping tax and spending bill.
"If we do nothing, we're going to see a collapse of our healthcare system, while we figure out a longer-term solution to fund our healthcare," Jimenez told the BBC.
Backers argue that the tax would ensure the ultra-wealthy contribute their fair share and would help backfill gaps in the state budget.
California has the largest economy in the United States and the fourth largest in the world, bigger than India and the UK, the BBC reported. It also has the largest share of homeless people in the nation and one of the highest wealth gaps. Trebbi said the measure could help narrow that gap.
Newsom and Brin oppose the measure as unions and Huang back it
As a statewide ballot measure, Proposition 40 needs approval from a majority of voters.
A September poll by the Berkeley Institute of Governmental Studies and the Los Angeles Times found 45% of likely voters in favor, 42% opposed and 13% undecided.
The measure has split both political leaders and the wealthy. California Governor Gavin Newsom, whose tenure is coming to an end, opposes it. He has said it could cause wealthy residents to leave the state and take their income tax revenue with them.
Google co-founder Sergey Brin has given more than $100m to a political organization funding ballot measures that could block the wealth tax, the Los Angeles Times reported.
Other billionaires support the proposition. Nvidia CEO Jensen Huang is among them, according to the BBC.
The BBC reported that the measure has caused some ultra-wealthy residents to leave the state. One billionaire businessman, who was not named, told the broadcaster he had brought jobs to California. He said the proposition made him feel "a little bit like I wasn't wanted".
Wealth tax pros and cons: what Europe's experience shows
Wealth taxes were once fairly common in Europe but have rapidly fallen out of favor. Dr Kristian Niemietz, head of political economy at the Institute of Economic Affairs, said they now exist in only three European countries: Spain, Norway and Switzerland.
Niemietz called wealth taxes "more trouble than they are worth." He argues that they create administrative problems, suppress investment and lead to capital flight. He also says they do not, in the end, raise much revenue.
The BBC cited two examples from those countries:
- In Norway, a local news organization found that a wealth tax increase led more super-wealthy people to leave the country in 2022 than in the preceding 13 years combined.
- In Switzerland, a study found that a 0.1 percentage point increase in a wealth tax reduced taxable wealth by 3.5%.
Supporters of Proposition 40 point to a different set of pressures. They say federal cuts threaten the state's healthcare system, and they cite California's concentration of extreme wealth alongside high homelessness.
Washington state weighs a separate millionaires tax
California is not the only West Coast state voting on taxing high earners. Voters in Washington state are considering a "millionaires tax," a 9.9% tax on income over $1m a year.
Washington's measure would tax annual income. California's would tax accumulated net worth once. Together, the two results could show whether voters in other states are open to taxing their richest residents more heavily.
Several questions remain open before and after the vote. The BBC report did not explain how billionaires' net worth would be valued or how the one-time levy would be collected if the measure passes.
It is also unclear whether the measure would face legal challenges. Nor is it known whether wealthy residents would leave in numbers large enough to cut income tax revenue, as Newsom has warned.
The September poll found 13% of likely voters still undecided. That share is larger than the margin between supporters and opponents.