What you need to know about Proposition 40, the one-time billionaire wealth tax

The Proposition 40 billionaire wealth tax is shaping up to be the most expensive and contentious ballot fight this year. The nationally-watched debate over taxing the ultra-wealthy is likely to draw hundreds of millions of dollars in spending from billionaires and business groups with ads that are set to saturate Californians’ TVs and social media feeds.

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But those aren’t the only groups involved. The tax pits backers like U.S. Sen. Bernie Sanders, I-Vt., and the California Federation of Labor against critics like Gov. Gavin Newsom and the California Teachers Association.

Here’s what you need to know.

What does Prop. 40 do?

Prop. 40 sets up a one-time, 5% wealth tax for people with more than $1 billion in assets who resided in California as of Jan. 1, 2026. Unlike existing California income taxes, the wealth tax targets the value of property people already own, like stocks, businesses and fine art. Property and certain retirement accounts would be exempt. In its existing form, it would apply to just a few hundred California billionaires — although critics have argued it opens the door to expansion down the road.

The measure would send 90% of the revenue on healthcare expenses caused by federal cuts to Medicaid passed by Republicans last year. The remaining 10% could be spent on education, food assistance and administration of the wealth tax.

What are the arguments in support of Prop. 40?

Prop. 40’s primary sponsor is a healthcare union, SEIU-United Healthcare Workers West, known for big ballot fights. The union argues the billionaire tax is the only way to immediately address federal healthcare cuts set to go into effect next year.

The California Health and Human Services Agency may lose coverage from H.R. 1 signed by President Donald Trump last year. Also known as The Big Beautiful Bill Act, it paired sweeping changes to Medicaid with tax cuts. Under the federal law, California also may lose more than $30 billion in annual federal funding.

SEIU-UHW estimates Prop. 40 will generate $100 billion to address those shortfalls, buying time while state or federal officials come up with longer-term solutions. And they argue billionaires have accumulated unprecedented wealth and can afford the tax.

“Billionaires amassed their extreme wealth on the backs of the middle class and we have a chance to make them pay their fair share so we aren’t stuck paying more for healthcare,” the Prop. 40 coalition said in the.

Supporters say the measure’s skeptics have yet to come up with another, immediate solution to what they describe as a looming crisis that could cost patients’ lives.

The California Democratic Party narrowly voted to endorse Prop. 40 in August and the Labor Federation is also backing the measure.

What are the arguments against Prop. 40?

Billionaires, led by Google co-founder Sergey Brin, have already spent well over $100 million on the measure, with much more expected to come. Business groups like the California Business Roundtable are also running ads against Prop. 40.

Read more What you need to know about Proposition 40, the one-time billionaire wealth tax

But the critics also include some traditionally left-leaning groups, like the California Teachers Association, Planned Parenthood Affiliates of California and Equality California. Both Newsom and the men running to replace him — Democrat Xavier Becerra and Republican Steve Hilton — have argued the tax is bad fiscal policy.

Some opponents have expressed concerns that almost all the revenue would go toward healthcare rather than education or other needs. Others have also argued the state needs a more sustainable funding solution, not a one-time tax developed largely by a single union.

Their biggest criticism is that Prop. 40 could nudge billionaires to leave California, as Brin and several others reportedly have, endangering a tax base that California heavily relies on to pay its bills. That could mean less long-term funding for public safety, transportation and education.

“Prop. 40 doesn’t solve inequality in California,” the critics argue in the measure’s voter guide. “It just pushes out the companies and successful residents who drive California’s economy, jobs and tax base—forcing other taxpayers to make up the difference.”

Finally, critics have argued that Prop. 40 opens up the door to future wealth taxes, since it can be modified with a two-thirds vote by the Legislature as long as the modifications are consistent with the tax’s original purpose.

How will Prop. 40 affect state finances?

The financial impacts of Prop. 40 are deeply contested. While wealth taxes exist elsewhere in the world, they haven’t been tried on anything like this scale in the U.S. before. That makes it hard to predict what will happen.

For example, while academics who helped develop the tax estimate it will bring in $100 billion, a group of right-leaning scholars at the Hoover Institute argue it will cost the state $25 billion as billionaires flee the state.

Nonpartisan state analysts say the tax will likely generate tens of billions of dollars, but also cost the state hundreds of millions or more in annual revenue.

What happens in Prop. 40 and rival measures both pass?

Two measures on the November ballot, Prop. 41 and Prop. 42, contain provisions that would prevent Prop. 40 from taking affect.

If voters approve Prop. 40 and one or both of its rival measures, the one with the most votes takes precedence. That means either Prop. 41 or Prop. 42 needs to win more votes than Prop. 40 in order to nullify its effects.

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Both measures are funded heavily by Brin.