California voters rejected a ballot measure that sought to impose a one-time tax on the state’s billionaires, NBC News projects, dealing a blow to progressives who championed the proposal.
Proposition 40 sharply divides Democrats in the state and nationally as the party determines which direction it wants to take ahead of an open presidential race. It also faced a barrage of advertising spending financed by the billionaires it allegedly affected, particularly in Silicon Valley.
The ballot initiative proposed a 5% tax on the assets of state residents whose net worth exceeds $1.1 billion, with the possibility of a smaller, progressive tax for those worth between $1 billion and $1.1 billion. This would require California to spend 90% of the revenue generated on health care. The taxes would apply retroactively to anyone living in the state starting Jan. 1, 2026.
Proposition 40 would have been the first enactment of a billionaire tax in the United States. But many progressives who favored higher taxes on the wealthy in general spoke against the proposal because it was a one-time tax rather than permanent, and it primarily benefited one policy area, health care.
Critics in both parties have argued that the tax would cause wealthy Californians to flee the state in droves, drying up broader sources of tax revenue and creating more budget problems.
Democratic opponents included incumbent Gov. Gavin Newsom, a possible 2028 presidential candidate, and gubernatorial candidate Xavier Becerra. Many of California’s largest unions and Democratic-aligned advocacy groups also opposed the measure.
Meanwhile, Sen. Bernie Sanders, I-Vt., and Rep. Ro Khanna, D-Calif., another potential White House hopeful, were among his notable supporters, holding several rallies in the state ahead of Election Day.
Opponents of Proposition 40 held a stunning advantage on the airwaves. By the end of October, they were spending 250 times more than their supporters on ads, according to ad tracking company AdImpact.
The biggest spender, “No to Proposition 40,” was a coalition that included the California Teachers Association, the California Medical Association and Planned Parenthood and received contributions from several billionaires. Other groups have received millions from Google co-founder Sergey Brin and the California Business Roundtable.
Opponents of the billionaire tax also placed two competing initiatives on the California ballot – Proposition 41 and Proposition 42 – that would have effectively overturned Proposition 40.
Proposition 41 sought to require the state auditor to review new special tax measures and for any new taxes to be factored into a voter-approved state spending cap. Proposition 42 proposed banning any new taxes on assets, including investment accounts and property, and limiting the increase in retroactive taxes. Both would have gone into effect with just one more vote than Proposition 40, even if it had passed.
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