California voters rejected a one-time tax on the state’s billionaires last week. A second measure, funded largely by those same billionaires, now looks set to make the next attempt much harder.
Proposition 42 was leading with 51.6% of the vote as of Nov. 10, with about 83% of ballots counted, according to Associated Press estimates published by KQED. The constitutional amendment bars new state taxes on personal property, including business interests, intellectual property and financial assets, and blocks most taxes from being applied retroactively.
Its sponsor, Building a Better California, is a political committee largely funded by Google co-founder Sergey Brin, who gave it $102 million. The committee put more than $300 million into defeating Proposition 40, the billionaire tax, and passing Propositions 41 and 42, according to the California Fair Political Practices Commission. Proposition 41 failed.
With Proposition 40 defeated, Proposition 42 stands on its own, and its reach goes well beyond the one-time tax it was built to stop. It walls off a pool of wealth that California lawmakers had never taxed but were free to, just as federal cuts open a hole in the state’s health budget.
Billionaires threatened to leave and spent heavily anyway
Many of the billionaires who backed Proposition 42 warned that a billionaire tax would drive the state’s wealthiest business leaders away. The New York Times reported that venture capitalist Peter Thiel and Google co-founder Larry Page were considering leaving, and Fortune reported in January that Page and Brin were cutting ties with California. Gov. Gavin Newsom also warned that a wealth tax would push the state’s richest residents out.
Brin, who now lists a Nevada address, has compared the billionaire tax to the Soviet-era socialism he fled as a child.
Billionaires account for a small slice of the state’s tax base. The academics who helped write Proposition 40 estimated that California’s billionaires pay about $3 billion a year in state income tax, roughly 2.5% of income tax revenue and about 1% of total state revenue. Economists at the conservative Hoover Institution put the figure at $3.3 billion to $5.8 billion.
By comparison, the top 2% of earners, a group that includes millionaires and other high-income households, pay about half of all state income taxes, according to the nonpartisan Legislative Analyst’s Office. The LAO has estimated that billionaires leaving the state in response to Proposition 40 would cost California less than $1 billion a year.
Even with several billionaires already gone, the money kept flowing. Reporting by the New York Times and CalMatters has shown that Propositions 41 and 42 were designed to nullify Proposition 40: had the billionaire tax passed, it would have been voided if either rival measure won more votes.
Proposition 40 lost statewide even though San Francisco and Los Angeles counties backed it, Fortune reported. Santa Clara County, the heart of Silicon Valley, voted it down.
What Prop 42 puts off-limits
Backers outside the billionaire class pitched the measure as protection for ordinary savers, echoing Proposition 40 opponents who warned that taxing billionaires was only the start.
Proposition 42 “permanently protects pensions, 401(k)s, IRAs and other personal savings from new taxes, whether proposed by the Legislature or at the ballot box,” said Brian R. Marvel, president of the Peace Officers Research Association of California, a statewide law enforcement association that donated $150,000 to the Yes on 42 campaign.
Critics say that argument is misleading, since Proposition 40 reached retirement savings only through billionaires’ Roth IRAs and similar accounts worth more than $10 million.
“Don’t be fooled—Prop. 42 is not really about protecting your retirement savings from new taxes,” Suzanne Jimenez, chief of staff at Service Employees International Union-United Healthcare Workers West, which sponsored Proposition 40, wrote in the official voter guide. “It’s a redundant, expensive trick to allow approximately 200 billionaires to keep avoiding paying their own taxes while YOU get stuck with the bill.”
California already taxes few assets beyond real estate, which Proposition 13 caps, plus boats, planes, business equipment and vehicles through the vehicle license fee. Until now, nothing in the state constitution stopped lawmakers from taxing other kinds of wealth.
The state taxes investment gains only when an asset is sold, so stocks can grow in value for years without being taxed. Under a rule known as “stepped-up basis,” heirs owe nothing on gains that built up during the original owner’s lifetime, a break the California Budget & Policy Center estimates costs the state about $5 billion a year. Proposition 42 largely puts that untapped wealth out of reach.
A fight over capital gains could land in court
Three of the law professors who helped write Proposition 40 argue that Proposition 42 could reach further still, into a measure voters approved last week. Proposition 3 makes permanent a tax increase on the top 2% of earners, largely to fund education, that was set to expire in 2031.
Brian Galle of UC Berkeley, David Gamage of the University of Missouri and Darien Shanske of UC Davis warned that Proposition 42 “could impact the ability of the state to tax capital gains income, whether as part of Proposition 3 or otherwise.”
Because the measure bars taxes on the “ownership or control” of personal property without defining the phrase, they argued, its protections could be stretched to cover all income-producing personal property. A court, they warned, could find that taxing capital gains under Proposition 3 is a “tax on the ownership or control of ‘financial assets.’”
Nathan Click, a spokesperson for the Yes on 42 campaign, told the San Francisco Examiner that the claim is “total BS.”
“Prop 42 was carefully crafted to only prohibit new taxes on retirements, savings and personal property, and to prohibit retroactive taxes,” he said. “That means that existing funding for schools, public safety, roads, healthcare, etc. is untouched by this measure.”
Kayla Kitson, a senior policy analyst at the California Budget & Policy Center, said the capital gains question “could end up in courts and would depend on how broadly courts interpret the language of the measure.” She declined to predict how a court might rule.
Less room to raise money in a budget crunch
Proposition 42 also bars new state taxes that apply retroactively, except during a declared emergency. Backdating a tax to the start of the tax year is common practice, according to the Budget Center, both to keep people from dodging a new tax and to bring in money quickly when the state needs it.
Kitson pointed to the 2024-25 budget talks, when Newsom proposed temporarily limiting how much businesses could use tax credits to reduce what they owed, starting in 2025. In final negotiations, the governor and Legislature moved the start date back to the 2024 tax year, which “raised revenue more quickly to prevent deeper budget cuts,” Kitson said.
The measure’s fiscal emergency exception likely would not have covered that move, she said, because the state constitution lets the governor declare one only if revenues fall “substantially” below the projections made when the budget passed. The 2024 change, Kitson said, “involved putting together a balanced budget rather than addressing an unplanned revenue shortfall after the budget was enacted.”
The state is heading into exactly that kind of squeeze. H.R. 1, the federal tax-and-spending law known as the “Big Beautiful Bill” that passed in July 2025, is expected to cut about $30 billion a year from Medi-Cal, according to the California Health Care Foundation. Medi-Cal covers more than half of the state’s children, 2.2 million seniors and people with disabilities, and 1 in 5 working Californians.
The cuts are expected to put rural hospitals at higher risk of closure. Proposition 40 was meant to fill some of those gaps.
“These Californians backed the strongest protections available to protect their hard-earned life savings from double taxation,” Click said.
Supporters of the billionaire tax have vowed to keep pushing, and Nobel laureate economists who backed it have predicted the idea will spread to other states. In California, though, any new wealth tax would first need voters to undo Proposition 42.
Brin, meanwhile, has kept working out of Google’s Mountain View headquarters, Business Insider reported. The tax he spent $102 million to defeat is gone, and the measure he funded makes the next one harder to pass.
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