Summary of Key Points
The mid-term elections in California in November will see a vote on Proposition 40, which proposes a one-time wealth tax for the extremely wealthy: residents of California with net assets exceeding $1 billion would be subject to a 5% levy, with the aim of raising $100 billion for healthcare (90%), education, and food assistance. However, billionaires are fighting back by spending heavily on lobbying and implementing "poison pill" clauses in opposing proposals. Many wealthy individuals have also begun to move out of California to avoid taxes. Nevertheless, the state's tax authorities are highly vigilant, making such moves not so easy. Even within the Democratic Party, there is division; the governor opposes the proposal for fear of a loss of tax revenue.
What is Proposition 40?
Proposition 40 was initiated by the Service Employees International Union-UHW (SEIU-UHW) and targets residents of California with net assets over $1 billion, regardless of where their assets are located globally. The union argues that the net wealth of California's billionaires has increased from $700 billion in 2019 to $2.1 trillion last year, representing a 212% growth, and they should contribute to society. The funds raised would be used: 90% to make up for cuts in federal healthcare funding, and 10% for education and food assistance, with an estimated target of $100 billion.
This tax is particularly aimed at Silicon Valley tycoons, many of whom hold their assets in stocks. If passed, individuals like Brin (co-founder of Google) could face tax bills in the tens of billions of dollars.
How are the Billionaires Fighting Back?
The billionaires have taken a proactive stance and have done two main things:
1. Lobbying with Money: Led by Brin (co-founder of Google), along with Schmidt (former CEO of Google) and others, they formed the "Build a Better California" group, raising over $150 million in donations. They spent $87 million on high-profile TV advertisements to scare voters, claiming that if the wealthy leave, businesses and jobs will disappear, and ordinary residents will bear the burden with reduced tax revenue affecting public schools and municipal facilities.
2. Using "Poison Pill" Clauses: They gathered signatures to include two opposing proposals on the ballot. One proposal requires new taxes to be audited and exempts certain expenditures from taxation; the other prohibits taxing personal assets and retirement accounts, while also limiting retroactive application of the tax. According to California rules, if conflicting proposals pass, the one with the most votes takes effect. This essentially provides a safety net for the opposition, meaning even if Proposition 40 passes, it could be invalidated if the opposing proposal receives more votes.
Billionaires Voting with Their Feet: Moving to Lower-Tax States
California already has high taxes (the highest personal income tax rate at 13.3%, the highest in the nation), and adding a wealth tax makes it even less competitive compared to states like Texas, Florida, and Nevada, which do not have state income taxes. As a result, many billionaires are moving:
- Brin plans to move his residence to Nevada by the end of 2025 and buy a house by Lake Tahoe before the proposal's retroactive date (January 1, 2026).
- Musk is shifting the focus of Tesla and SpaceX to Texas.
- Ellison is moving Oracle's headquarters out of California.
- Til (co-founder of Palantir) is transferring his funds and business operations to Miami.
- Other notable individuals such as Page (co-founder of Google) and Kalanick (Uber) have also relocated or reorganized their family offices.
In the words of an expert, "These wealthy individuals, who are like golden geese that lay eggs, can fly whenever they wish."
It's Not That Easy to Leave!
Moving out of California is not as simple as buying a house; the California Franchise Tax Board (FTB) is very strict in its inspections. The following three criteria are key:
1. Actual Relocation: You must move your primary residence and all belongings out of California; even if your spouse or children continue to attend school there, it doesn't count.
2. Shift in Lifestyle: You need to use medical, dental, legal, and accounting services provided by new locations. For example, if you claim to have moved to Nevada but still use California-based services regularly, the tax authorities won't recognize your relocation.
3. Tracing Your Activities: The FTB will check private jet logs, credit card transactions, and mobile IP addresses to determine how many days you spend in California each year. Even if you move to another state but spend 150 days a year in the San Francisco Bay Area for business or personal reasons, you may be considered to have only "temporarily moved" for tax purposes and will be required to pay back taxes and fines.
Division Within the Democratic Party
While the official California Democratic Party supports Proposition 40, Governor Newsom (a Democrat) opposes it. His argument is practical: "If the wealthy leave, California will lose its tax base, and healthcare and education will suffer even more." This highlights the controversy surrounding the proposal—whether it is about using wealth to help the poor or simply driving away the wealthy.
In summary, Proposition 40 represents a conflict between the extremely wealthy and the Service Employees International Union-UHW, as well as the general electorate. The final outcome depends on the voters' decisions in November. Nevertheless, the debate over taxes and the wealthy in California will continue.