California voters have rejected a ballot measure that sought to impose a one-time tax on the state’s billionaires, dealing a blow to progressives who championed the proposal. NBC News projects the defeat of Proposition 40, which sharply divided Democrats and faced heavy opposition from wealthy donors and business groups.
What Was Proposition 40?
The ballot initiative proposed a 5% tax on the assets of state residents who have net worths of more than $1.1 billion, with the option for a smaller, phased-in tax for those worth between $1 billion and $1.1 billion. Under the measure, California would have been required to spend 90% of the created revenue on healthcare. Furthermore, the taxes would have applied retroactively to anyone living in the state as of Jan. 1, 2026, marking what would have been the first enactment of a billionaire tax in the U.S.
Division Among Democrats and Progressives
The measure exposed deep rifts within the Democratic party as party figures weigh their direction heading into an open presidential contest. Democratic opponents included outgoing Gov. Gavin Newsom, a possible 2028 presidential contender, and gubernatorial candidate Xavier Becerra, alongside many of California’s largest unions and Democratic-aligned advocacy groups.
Conversely, prominent national progressives campaigned heavily in favor of the measure. Sen. Bernie Sanders, I-Vt., and Rep. Ro Khanna, D-Calif., another potential White House hopeful, were among its notable backers, holding several rallies in the state ahead of Election Day. However, some progressives who generally support increasing taxes on the wealthy opposed the specific initiative because it was a one-time tax rather than a permanent one, and because it primarily benefited just one policy area, healthcare.
Key Facts of the Election
- Proposition 40: A proposed 5% one-time tax on California residents with a net worth over $1.1 billion.
- Revenue allocation: 90% of funds generated would have gone toward healthcare.
- Ad spending: Opponents held a staggering upper hand, outspending supporters 250 to 1 in late October according to AdImpact.
- Dueling initiatives: Opponents placed Proposition 41 and Proposition 42 on the ballot to effectively nullify Proposition 40 if it passed.
Opposition Spending and Dueling Initiatives
Critics in both parties argued that the tax would prompt wealthy Californians to flee the state, drying up broader tax revenue streams and creating more budget problems. Opponents held a staggering upper hand on the airwaves, outspending supporters 250 to 1 in late October according to the ad-tracking firm AdImpact.
The biggest spending coalition, “No on Prop. 40,” included the California Teachers Association, the California Medical Association, and Planned Parenthood, and received contributions from several billionaires. Other groups secured millions from Google co-founder Sergey Brin and the California Business Roundtable.
Additionally, opponents placed two dueling initiatives on the ballot — Proposition 41 and Proposition 42 — designed to effectively nullify Proposition 40. Proposition 41 sought to require state auditor reviews for special tax measures and count new taxes toward a voter-approved state spending limit. Proposition 42 proposed banning new taxes on assets like investment accounts and property, while restricting retroactive tax increases. Both measures could have gone into effect by earning just one vote more than Proposition 40, even if it had passed.
Frequently Asked Questions
What was Proposition 40 in California?
Proposition 40 was a ballot measure proposing a one-time 5% tax on state residents with a net worth exceeding $1.1 billion, with 90% of the revenue earmarked for healthcare.
Who supported Proposition 40?
Notable backers included Sen. Bernie Sanders and Rep. Ro Khanna, who held several rallies in California ahead of Election Day.
Who opposed Proposition 40?
Democratic opponents included outgoing Gov. Gavin Newsom and gubernatorial candidate Xavier Becerra, along with a major coalition of business groups, unions, and high-profile donors including Google co-founder Sergey Brin.