Before Proposition 40 had qualified for the ballot in California – in fact, before a single signature had been collected – it had already caused a small but noticeable exodus out of the Golden State. The people who left in disproportionate numbers in 2025 were California’s billionaires. And what they were fleeing was a tax that would confiscate 5% of their fortunes in one go.
If passed by voters in November, what Prop 40 would tax is not the earnings of billionaires, which they had already paid taxes on, but rather their accumulated wealth and their unrealized gains in company stocks – sometimes known as paper wealth.
Several billionaires got out when they did because, after much legal wrangling, it was established that the retroactive nature of Prop 40 could apply to those people who were still resident in the state on 1 January of this year.
Those who were fleeing did not simply buy houses in other states, which is a simple enough thing to do if you have millions of dollars to throw around. California’s Franchise Tax Board has a reputation for fierce enforcement, even across state lines whenever possible, and so the billionaires needed evidence that would hold up in court.
CEO.com explained that making those moves stick legally “requires documented proof of intent: new voter registration, a new driver’s license, time spent physically in the new location, and severing ties to California”. The billionaires who were exiting in 2025 were “trying to build an evidence trail that predates the retroactive trigger”.
There Goes the Tax Base
Because the rich pay a lot of taxes, and the superrich pay even more taxes, it does not take many of them leaving a state to create serious budgetary problems. And according to the available evidence, that has already happened in California.
Several economists prepared a report on the fiscal impact of Prop 40 for the Hoover Institution. They found that the proponents of the referendum are likely way off in how much short-term revenue it would raise, with $40bn in one-time revenue raised instead of $100bn.
The Hoover report also found a “high likelihood that the net effect of the Billionaire Tax Act will be negative” because of the “permanent loss of income taxes from the departing residents”. The net negative impact on California’s coffers is expected to be about $25bn.
The authors wrote elsewhere that they consider their roughly $25bn loss prediction to be a “relatively conservative” estimate and that they excluded other knock-on bad effects that passage of Prop 40 could have in terms of “spillover effects, lost sales tax, property tax, and business activity from the analysis”.
Huge Signature Drive Pays Off
Prop 40 was drafted and organized by the SEIU United Healthcare Workers West, which has a long history of effectively shaking industries down via the referendum process with proposed new taxes.
It takes a significant number of signatures to get a proposition onto the California ballot: 874,641 valid signatures, to be exact, according to the California Secretary of State Shirley Weber’s office.
Combing through petitions can be a long and cumbersome process. If enough signatures are submitted, there is a legal workaround. A referendum “can become eligible via random sampling of petition signatures if the sampling projects that the number of valid signatures is greater than 110 percent of the required number”. This meant Prop 40 “needed at least 962,106 projected valid signatures”.
It had those to spare, with more than 1.6 million signatures submitted.
On 17 June, Secretary of State Weber announced that the referendum “has exceeded that threshold today”.
But Will It Pass?
California is a very Democratic state, but its voters do not always love new taxes. The usual rule of thumb with an issue on the ballot is that if the polling does not show a comfortable majority going into an election season, it fails.
Therefore, a March poll commissioned by Berkeley’s Institute of Governmental Studies could give some comfort to opponents of Prop 40. Pollsters found that only 52% of voters favored the measure, before opponents have had time to drive those numbers down with negative advertising in the fall.
But the poll also contained much to crow about for those in favor of a wealth tax. Start with the fact that while 52% supported it, only 33% of voters surveyed opposed it.
Sometimes the way a question is worded can skew the outcome of a poll. In this case, the question did a pretty good job of mirroring the main points, pro and con, that voters are likely to encounter leading up to November.
The whole question that was mooted to voters was a description of Prop 40, followed by the dueling arguments: “Supporters say it will provide much needed tax revenues and help offset the cutbacks being made by the Trump administration to existing state health care and food assistance programs. Opponents say its passage would undercut state tax revenues in the long run and stifle innovation as many of California’s highest paying taxpayers and most successful individuals may choose to leave the state to avoid the tax. If you were voting today on the Billionaire Tax Initiative, would you vote Yes or No?”
The fact that 52% of California voters polled were given those particular pros and cons and decided a yes vote was the right call may speak to the acute instincts of several billionaires who decided to vote with their feet.