California Voters Reject Prop 40 One-Time 5% Tax on Billionaires

With about 83% of expected votes counted, the No side had 52.8%, or 5,909,778 votes, against 47.2%, or 5,288,379 votes, for Yes, according to figures published by NBC Los Angeles. NBC News also projected the measure's defeat.

The outcome matters well beyond Sacramento for the technology industry. Much of the wealth the tax would have reached is tied up in shares of a few companies, many of them in AI, and investors had warned it would push founders to sell stock, give up control or leave the state. The Guardian described the campaign as the most expensive in California history, flush with Silicon Valley money.

The measure was backed mainly by labour unions and drafted with help from the UC Berkeley economists Emmanuel Saez and Gabriel Zucman. Senator Bernie Sanders and Representative Ro Khanna, whose district covers part of Silicon Valley, supported it. Backers said it could raise as much as $100 billion over five years, largely for Medi-Cal, the state's Medicaid programme, and they presented it as a way to offset federal cuts to healthcare and food aid. Estimates of how many people it would have affected varied: TechCrunch put the number of California billionaires at a little over 200, while supporters cited roughly 250.

Governor Gavin Newsom opposed the measure. He has said he supports a national billionaire tax but that a California-only levy would put the state at a disadvantage because wealthy residents could move elsewhere. Xavier Becerra, a candidate for governor, called it "sketchy".

The state's nonpartisan Legislative Analyst's Office said the tax could bring in money for several years, but that some wealthy residents might leave, eventually costing the state about $1 billion a year in lost revenue. It also estimated that running and enforcing the tax would cost tens of millions of dollars a year.

Investors in the start-up world said the threat of future wealth taxes also counted. Nic Carter, a general partner at the Florida-based crypto venture firm Castle Island Ventures, told TechCrunch before the vote that a tax like this would "inhibit venture capital investment", because investors would be wary of backing a company whose founder might have to sell a large share of their stock. "You're signaling to the entrepreneur class that you consider them a resource to be plundered," he said.

Saez rejected the argument that founders would lose control of their companies. "The wealth tax hits you by diluting your economic ownership but [shares] can be easily structured to avoid losing any control rights," he told TechCrunch, pointing to dual-class share structures that separate voting power from economic ownership. He also said that the state collects only about $3 billion a year from its billionaires, around 1% of its revenue, even as AI has driven a sharp rise in wealth concentrated in a small number of people and companies.

The defeat means California's billionaires will not face the levy, which would have applied to people living in the state on January 1, 2026. The question of how to fund Medi-Cal after federal cuts now falls back on the legislature and on whoever succeeds Newsom as governor in January.