By Priya Raman

California voters rejected Proposition 40 on Monday evening, with 53.8% opposing the measure and 47.2% backing it, according to the Associated Press. The AP called the election at 9:38 p.m. with 83% of the vote counted.

The result blocked a one-time 5% levy on accumulated wealth for taxpayers with more than $1 billion in taxable assets. Had it passed, California would have imposed the first major U.S. tax on general wealth (assets rather than annual income) in modern history.

What would Proposition 40 have taxed?

• Rate: A one-time charge equal to 5% of accumulated wealth.
• Threshold: Taxable assets worth more than $1 billion.
• Taxable assets: Stocks, homes, artwork and other holdings.
• Use of proceeds: Medi-Cal, California’s Medicaid program, and similar healthcare programs for low-income Californians.

The one-time design meant that eligible taxpayers would have faced a single charge based on assets already held, not a recurring tax tied to each year’s earnings. That distinction defined the measure.

Why did supporters expect $100 billion?

Supporters argued that the levy could raise some $100 billion for California. Service Employees International Union–United Healthcare Workers West, known as SEIU-UHW West, served as the initiative’s top supporter. The union said the proceeds would shield California’s healthcare system from projected federal funding cuts.

Some on the Left treated Proposition 40 as a trial balloon for a nationwide wealth tax. They also viewed it as a blueprint for similar measures in other states and at the federal level. Socialists had long advocated billionaire wealth taxes and hoped the California referendum would strengthen the wider movement.

What did the campaign’s biggest supporters say?

An open letter from six Nobel Prize-winning economists argued that the measure could spur a movement for higher taxes on the wealthy across the United States. The signatories were Daron Acemoglu, Abhijit Banerjee, Peter Diamond, Esther Duflo, Paul Krugman and Joseph Stiglitz, all of whom supported taxing the wealthy more.

The group wrote: “California is the right place to take this historic step.” Sen. Bernie Sanders (I-VT) also endorsed the proposal, calling it “a model that should be emulated throughout the country.”

Could billionaire departures have erased the revenue gain?

The central dispute was whether the $100 billion estimate was credible and whether the tax would change taxpayer behavior. Stanford University economists Benjamin Jaros and Joshua Rauh found the revenue estimates grossly oversold in an analysis circulated as a working paper (research circulated for discussion) by the National Bureau of Economic Research (NBER).

Their analysis also found that California’s treasury could have taken an overall hit if billionaires fled the state. The mechanism is straightforward: a one-time wealth levy could raise money at collection while departures reduced future income-tax receipts for years.

California Gov. Gavin Newsom, a potential 2028 Democratic contender, opposed Proposition 40. He argued that billionaires would move to other states if the levy passed, harming California’s economy and shrinking its tax base, the pool of income and other payments the state taxes. His position framed the proposal as a test of whether California could retain wealthy residents and the taxes they generate.

What does the rejection change?

With Proposition 40 rejected, California will not impose the proposed 5% charge or divert an estimated $100 billion to Medi-Cal and related programs. It also denies the proposal’s supporters the successful California example they wanted other states and the federal government to consider.

For Newsom, the decisive argument was behavioral: heavy taxation could prompt the departure of the taxpayers California sought to reach. For supporters, the loss exposes a political constraint in the same research: uncertain collections can combine with migration risk to weaken the case for a large wealth levy.

Supporters can still carry Proposition 40’s blueprint into other states and federal debates, but their California proof point is now a defeat. The $100 billion pitch failed. The political wager failed too.