Billionaires aren't off the hook for higher taxes, even if they did dodge California's wealth tax

Andrew Keshner

Silicon Valley spent big to kill California's wealth tax - but incoming Democrats are eyeing a national fight

California's Proposition 40 appeared headed to defeat, but that may not be the end of efforts to hike taxes on super-rich Americans.

A ballot measure that would have created a first-of-its-kind wealth tax on billionaires appears headed for defeat in California, concluding a costly campaign that prompted some super-rich residents to leave the state.

Proposition 40 looked poised to fail as of Wednesday afternoon. With 60% of the vote counted, "no" votes were ahead by a 55.6% to 44.4% margin, according to the Associated Press. The AP did not declare a winner, but if the margin holds, the defeat averts a one-time 5% tax on the paper wealth of billionaires, including their stock portfolios, art collections and business stakes.

But ultrarich Americans were still arguably a step closer to seeing higher tax bills on Wednesday than they had been a day earlier, according to experts surveying state ballot measures and the Democratic blue wave that's coming to Washington, D.C.

A renewed push on higher taxes for wealthy Americans would be a counterpunch to a sweeping 2025 Republican tax law that kept most income-tax rates - including the top rate - from increasing. It also comes at a time when wealth inequality is widening, according to Federal Reserve data.

Start with the state income-tax measures targeting high earners this midterm season.

In Washington state, an effort to repeal a 9.9% income tax on millionaires didn't appear to have enough votes, with "no" votes ahead by an approximate 58% to 42% margin as of Wednesday afternoon, the AP said.

In Colorado, voters seemed to be leaning toward higher income-tax rates on households starting at $500,000. The vote was still close as of Wednesday, with "yes" votes at 50.49%, according to the Colorado secretary of state's office.

Through a separate ballot measure in California, voters appeared likely to keep the state's income-tax rates higher for the state's richest residents even as they rejected the one-time 5% wealth tax for billionaires.

"If you're a billionaire in this country, you should expect to be paying higher taxes," Abdul El-Sayed, Michigan's senator-elect, said in a Wednesday morning interview with NPR. El-Sayed is among the Democrats who will take control of the U.S. House of Representatives and the Senate in January.

Even if California's Proposition 40 doesn't pass, it will still have accomplished something for backers of a wealth tax, said Andrew Lokay, a senior research analyst at Beacon Policy Advisors. "Now that it's been proposed, that takes the concept from the theoretical to a reality," he said.

The initial steps to higher taxes for the country's wealthiest 1% could come soon, said Henrietta Treyz, co-founder and director of economic policy at Veda Partners.

Higher income taxes for billionaires, "and, perhaps a special bracket for the trillionaires among us," will likely get into a bill Democrats could put together next year, she said.

The same bill could be stuffed with provisions geared at improving affordability, setting up a veto from President Donald Trump, Treyz said. That would be campaign fodder for Democrats going into the 2028 presidential election, she noted.

In 2028 and 2029, several major tax breaks in the Republican tax law will expire, making those important years for taxes. "The billionaire tax debate at a federal level is coming, even if it fails at the state level," Treyz said.

On Wednesday morning, Sen. Ron Wyden of Oregon, the top Democrat on the Senate Finance Committee, said in a statement that the committee would "redouble its efforts to ensure billionaires pay their fair share and hold tax cheats accountable."

Florida Gov. Ron De Santis said Democrats shouldn't get ahead of themselves.

"They did not earn a mandate to indulge all their left-wing fantasies," he said at a Wednesday press conference. "They are going to be in there governing, and we'll see what happens. But this was not a positive view of the Democrats. This was a rejection of Republicans in Washington, and Democrats just happen to be the beneficiary."

Florida voters took a big step toward cutting their own taxes, passing a constitutional amendment to significantly slash local property-tax bills. De Santis was a driving force behind Amendment 3, while local governments and law enforcement warned it would lead to service cuts.

In California, the proposed wealth tax was a response to the Republican federal tax law's reduced funding for social safety nets like Medicaid.

The prospect of a wealth tax had cast a long shadow for the state's richest residents.

A number of billionaires left the state before the end of 2025 to avoid the tax. Google (GOOG) co-founder Sergey Brin spent over $100 million to back political action committees opposing the tax. Meta (META) CEO Mark Zuckerberg negotiated his most recent compensation package to partly brace for the risk that Proposition 40 would become law.

The total spending on Proposition 40, for and against, will surpass $500 million, according to Sonoma State University professor David McCuan, who tracks spending on state and local elections, and could approach $650 million. Organizations and individuals supporting the tax spent around $150 million, while opponents are poised to have shelled out more than $500 million once the dust settles, according to McCuan's estimates.

"This makes Prop. 40, in real dollar terms, the most expensive ballot measure ever, in the most expensive midterms ever," McCuan told MarketWatch.

Several large labor unions were big backers of Proposition 40. In a Tuesday night press conference, Dave Regan, president of United Healthcare Workers West, vowed to fight on, whatever the result. "It's not enough to try once when you deal with something like this," he said.

On Wednesday, University of California, Berkeley, economist Gabriel Zucman, a Proposition 40 supporter and longtime wealth-tax proponent, said on X: "Silicon Valley billionaires have won this battle. But they will lose this war. It's only a matter of time, and the Democratic wave may well accelerate this shift."

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-Andrew Keshner

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11-05-26 1002ET