Imagine starting a company in California. Years later, that company becomes worth billions. Your shares make you a billionaire, even though most of that money isn’t sitting in your bank account.
Now imagine California wants to tax a portion of that wealth.
That’s the question behind Proposition 40, a measure California voters will decide on November 3, 2026.
What California Is Proposing
Proposition 40 would impose a one-time 5% tax on the net worth of billionaires who were California residents on January 1, 2026.
Unlike income taxes, which generally apply to money earned, this tax would apply to wealth already owned, including stocks, businesses, art, collectibles and intellectual property.
Real estate and most retirement accounts would generally be excluded.
For someone with $2 billion in taxable net worth, 5% would mean approximately $100 million.
The money wouldn’t all be due immediately. Taxpayers could spread payments over five years, although doing so would increase the amount owed.
Where Would the Money Go?
California’s nonpartisan Legislative Analyst estimates the tax could raise tens of billions of dollars over several years.
Ninety percent would go toward public health care services, including programs serving lower-income residents. The remaining 10% would go toward education, food assistance and administering the tax.
The idea is to use a portion of the wealth held by the state’s richest residents to fund public services.
But collecting that money could come with consequences.
Why Billionaires Might Leave
California is home to hundreds of billionaires, many whose fortunes are tied to technology companies.
And when billions of dollars are involved, where someone lives can make a significant difference in what they owe in state taxes.
Some wealthy technology figures have relocated from California to states such as Texas and Florida. But a move alone doesn’t prove that a particular tax proposal caused it.
What we do know is that California’s own Legislative Analyst has warned that some billionaires may leave in response to the wealth tax.
That matters because California already collects income taxes from wealthy residents.
If those residents move away, the state could lose future tax revenue even while collecting billions from the one-time wealth tax.
The state’s estimate puts that possible ongoing revenue loss at less than $1 billion annually.
There’s another important detail: Proposition 40 uses January 1, 2026, to determine residency. Moving after that date would not automatically eliminate someone’s liability under the proposal.
What Does the Constitution Say?
The U.S. Constitution gives Congress the power to levy taxes, but it also places special restrictions on certain federal direct taxes.
California’s proposal is different because it involves state taxation.
Proposition 40 would amend California’s Constitution to authorize this particular wealth tax.
That doesn’t mean every legal question disappears. Federal constitutional protections could still be relevant if the measure is challenged.
The central issue is how far a state can go in taxing wealth, particularly when much of that wealth exists in businesses and investments rather than cash.
The Bigger Question
This debate reaches beyond California.
It raises questions about how America taxes income, property, investments and the businesses people build.
A billionaire may own shares worth billions without selling those shares or receiving that amount in cash.
At the same time, that ownership represents substantial economic wealth.
So where should taxes apply?
When wealth is created? When its value increases? Or when an asset is sold and the owner receives the money?
Now imagine that company worth $2 billion belonged to you.
Would you view a one-time 5% wealth tax as a reasonable contribution to public services?
Or would you believe taxes should apply when you actually receive income from what you own?
California voters are being asked to make that decision, and the outcome could influence future conversations about how America taxes wealth.