New California Wealth Tax Faces Voter Rejection: What to Know
A proposed tax on extreme wealth in California is nearing defeat.
California's proposed one-time 5% tax targeting billionaires appears headed for defeat, dealing a potential setback to supporters of a wealth tax in the Golden State. The measure, which appeared on the November 3 midterm election ballot, was intended to raise tens of billions of dollars for healthcare and other public services.
The proposal, backed by the Service Employees International Union–United Healthcare Workers West (SEIU-UHW) and Congressman Ro Khanna (D-Calif.), but opposed by California Governor Gavin Newsom, would have applied to individual residents with more than $1 billion in wealth as of January 1, 2026.
Here's more to know about the controversy surrounding the measure.
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Related: California Retirement Tax 2026: Is the 'Social Security Shield' Enough?
The proposed California wealth tax
Under the proposed "2026 Billionaire Tax Act" (PDF), any California resident whose net worth exceeds $1 billion calculated as of December 31, 2026, would owe 5% of that net worth, with payment due in 2027.
The proposal reportedly includes a phase-out from $1 billion to $1.1 billion in net worth, meaning individuals slightly above the threshold wouldn't face the full 5% rate immediately.
- Those who can't or don't want to pay in full could spread payments over five years, but remaining balances would incur an additional annual, nondeductible charge.
- The tax base could affect businesses, stocks, bonds, art, collectibles and intellectual property, while excluding real estate, pensions and retirement accounts.
Advocates note that the idea is to focus on types of financial and corporate wealth that have surged in recent years, e.g., in the tech industry.
California's nonpartisan Legislative Analyst's Office (PDF) has estimated that roughly 200 to 250 billionaires could be affected by the measure and that the plan could raise approximately $100 billion in one-time revenue, depending on market conditions and final valuations.
Why the wealth tax faced political pushback
Not surprisingly, the plan drew sharp resistance from some high‑profile lawmakers. A key concern seems to be the potential for driving capital and high-earning residents away.
Newsom said these kinds of wealth‑tax ideas are "going nowhere in California" and argued the state "can't isolate [itself] from 49 other states."
San Jose's Democratic mayor, Matt Mahan, warned on X that "driving billionaires out of state might feel good in the short run but working people (as is almost always the case) will pick up the tab," for what he described as a "political policy."
- Mahan had pointed out that roughly half of California's personal income tax revenue comes from the top 1% of earners.
- The argument is that if those taxpayers leave, the state could be forced either to raise taxes on the middle class or cut services.
The proposal also sparked heavy opposition, funding, and an interesting political coalition determined to defeat it.
Billionaire and Palantir co-founder Peter Thiel reportedly donated $3 million to the California Business Roundtable to try to stop the measure.
Also in opposition? Major health groups and labor unions, including Planned Parenthood, the California Teachers Association, and the California Medical Association.
All came out against the proposed wealth tax, seeing it as a flawed and unsustainable funding model.
Not all California billionaires opposed the proposal
But notably, not all billionaires opposed the measure.
NVIDIA CEO Jensen Huang, whose estimated net worth of $155 billion to $162 billion would have subjected him to a roughly $8 billion tax bill, said he is "perfectly fine" with the proposal.
"We chose to live in Silicon Valley, and whatever taxes they would like to apply, so be it," Huang told Bloomberg Television. "I've got to tell you, I have not even thought about it once."
Huang emphasized that Silicon Valley's talent pool is the primary reason NVIDIA remains in California.
Adding to the chatter, late last year, in response to Thiel's warning of leaving the state over such a tax, Khanna posted the following on X (formerly Twitter).
"Peter Thiel is leaving California if we pass a 1% tax on billionaires for five years to pay for healthcare for the working class facing steep Medicaid cuts. I echo what [former President Franklin D. Roosevelt] said with sarcasm about economic royalists when they threatened to leave, "I will miss them very much."
The debate about taxing unrealized gains
Some of what adds to the debate about this proposal is the idea that it could effectively tax unrealized gains — the paper increase in value of assets that haven't been sold.
- Note: Under current federal rules, most capital gains are taxed only when an asset is sold, so the owner has cash to pay the tax.
- Here, if approved, the state would look at what someone is worth on a set date and apply 5% to that amount, whether or not any stock, business stake, or artwork has been converted to cash.
Critics say it could force founders and investors to unload large stakes in companies or other illiquid assets to pay the bill. The argument is that it could potentially drag down valuations and affect ordinary shareholders.
Supporters countered that the current system lets billionaires' wealth soar while reporting relatively modest taxable income. Some see a one‑time wealth tax as a way to capture gains that might otherwise never be taxed.
Legal and valuation challenges would have ensued
The wealth tax proposal included language to amend the California Constitution so the levy fits within existing limits. But legal pundits disagreed on whether a one‑time tax on overall net worth would be treated, from a legal standpoint (i.e., as more like a property tax, a capital gains tax, or something else).
That uncertainty meant lawsuits were widely expected, even if voters had approved the measure.
From a practical standpoint, the state would also have needed to determine the value of highly complex assets on the key valuation date.
- For example, stakes in private companies, venture funds, or unique art and intellectual property would likely have been harder to price and easier to dispute.
- California tax authorities would have needed detailed valuation rules and substantial enforcement resources.
- Wealthy taxpayers would likely have challenged aggressive assessments, which some say could slow collections and add cost.
What this wealth tax would have meant for California taxpayers
For individual taxpayers, the question wasn't whether they personally would owe the tax, since the plan targeted a small number of residents. The key question was whether a billionaire tax would improve the lives of everyone in the state.
Supporters believe that a one-time large contribution could reduce the burden on other taxes and offset federal funding cuts.
- The funds from this levy would have paid for healthcare and related services without increasing income or sales taxes for middle- and lower-income families.
- Essentially, they argued that a small portion of the wealthy's fortunes can help support systems that everyday families depend on.
Opponents were concerned that if many wealthy individuals moved away or transferred their assets, the state could lose significant tax revenue.
- This would have meant higher taxes for those who stay or cuts to services.
- They also warned that forced asset sales could disrupt the market, affecting anyone with a retirement account linked to those companies.
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