Explained: California’s billionaire tax, what Prop 40 means?

Dubai: California is still counting votes on Proposition 40, a one-time 5 per cent tax on billionaires’ wealth. With about 49 per cent votes counted as of 09:45 UAE time on November 4, the odds-were in favour of a ‘no’ which means that the proposition is likely to face a tough fight to go through. 

What is California's Prop 40?

Prop 40 is a ballot initiative put before California voters on Nov 3, when they go in to vote for the mid-term elections. If the proposition passes, the state would levy a one-time, 5% tax on the wealth of California taxpayers and trusts with assets valued over $1 billion.

The tax applies to anyone who was a California resident on January 1, 2026 and is worth $1 billion or more, measured on December 31, 2026. It counts worldwide net worth, excluding real estate held directly. Payments can be made lump sum of with a 1 per cent annual installments over five years. The revenue would be used to pay for state healthcare programs, food assistance programs and public education.

The measure needs a simple majority. Revenue would sit in a dedicated reserve fund. How the state would value billionaires’ assets remains unclear. Two rival measures complicate matters. If Proposition 41 or 42 draws more votes than Proposition 40, the tax is nullified. Proposition 42, backed by the governor, would bar new taxes on financial assets.

Where Californians stand

Labor and party leaders back the measure. Supporters include Senator Bernie Sanders, the California Democratic Party, the California Labor Federation and the Teamsters.

Governor Gavin Newsom, a Democrat, has opposed it. He argues billionaires will leave the state, though he supports a federal billionaire tax. The California Taxpayers Association, the California Teachers Association and the California Medical Association also oppose it.