California's 'billionaire tax' fails to pass
Campaign against inequality falters as fears prevail that the ultra-wealthy will leave the state
California voters rejected Proposition 40—a proposed one-time billionaire tax in the state—reported Associated Press on Monday. The measure failed following a costly campaign in which labor unions opposed some of the wealthiest figures in the tech industry. Governor Gavin Newsom also opposed it.
Nick Carter lives as far from Silicon Valley as possible within the continental U.S., yet his stance on California’s proposed billionaire tax was resolutely firm.
Carter, a Florida resident and general partner at cryptocurrency-focused venture capital firm Castle Island Ventures, stated before the vote that he believed the proposal—which was on the ballot during last week’s midterm elections in California—would actually be a huge win for more financially conservative states like his home state.
"I think it would be great for Florida and Texas if such taxes were passed," Carter said last week. "Frankly, I think it’s a shame that California has a kind of semi-monopoly on capital creation and that this monopoly is being squandered due to extremely inefficient local governance."
Proposition 40, also known as California’s 'billionaire tax,' was a ballot initiative proposing a special one-time 5% wealth tax on state residents with a net worth exceeding $1 billion. This tax, which would apply retroactively to anyone residing in California as of January 1, 2026, was intended to fund a range of state programs—primarily Medi-Cal, the state’s Medicaid program providing healthcare to eligible low-income residents.
Supporters of the proposal—primarily labor unions—argued it would inconvenience an extremely small number of state residents: California is home to just over 200 billionaires, who collectively hold about $2 trillion. In return, they claimed, the initiative would generate massive revenue. Its backers projected it could raise up to $100 billion over five years, which could then be directed toward supporting public healthcare and education.
Opponents, however, contended it would drive the state’s wealthiest residents to leave and ultimately reduce incentives for growth. The capital flight argument—that California’s richest residents would permanently relocate, depriving the state of a more stable revenue source—dominated discussions among corporate leaders online ahead of the vote. A pre-vote critical, though contested, analysis suggested the proposal would actually result in the state losing money over time.
Carter, who subscribed to this view, called the tax a 'Sword of Damocles hanging' over the heads of company founders. He said the threat stemmed not just from this specific wealth tax but from anticipated future taxes.
"You’re signaling to the entrepreneurial class that you view them as a resource to be plundered," he said.
Carter, who frequently works in San Francisco with tech startups, argued such a tax 'would discourage venture capital investment' because venture capitalists 'wouldn’t necessarily want to invest in a company if they knew the founder would have to liquidate a huge portion of their shares.' The logic was that since many billionaires hold most of their wealth in their own companies, new billionaires would find it inconvenient to convert a portion of that wealth into liquid assets just to pay the tax.
Jesse Tinsley, a California entrepreneur with a lifelong career in startups, agreed. Tinsley is the co-founder and CEO of Mainstreet, a fintech holding company that owns job sites like Employer.com and Recruiter.com. Tinsley founded his first startup years ago and said that, based on his experience, achieving what he has would have been impossible under the proposed tax. He also echoed a widespread concern: founders whose corporate assets could be taxed would have an incentive to relinquish control of their companies.
"I built my business myself. I have super-voting shares, and I started as a college dropout, a bankrupt firefighter with bad credit and all that, then built a multi-billion-dollar business," Tinsley said last week. "I think this [tax] takes away the opportunity to do something like that."
Tinsley said he believed the proposed tax 'forces founders into a system' where 'anyone who wants to become an entrepreneur has to… raise money or some capital or move. Essentially, those are the only two options.'
Emmanuel Saez, a key tax policy architect, stated before the vote that concerns about founders losing control were unfounded and not part of the proposal’s design. Saez, a French economics professor at the University of California, Berkeley, helped create and promote the initiative alongside Gabriel Zucman, another Berkeley economist.
"A wealth tax affects you by diluting your economic stake, but [shares] can easily be structured to avoid losing any control rights," Saez said, noting that many billionaires own only a small percentage of their companies. He also argued that share structures could be designed to separate economic ownership from voting control. Indeed, a common strategy to achieve this is the dual-class share structure, which grants founders significant voting rights even with a limited equity stake.
Saez noted that artificial intelligence has driven enormous wealth growth in California, yet much of that wealth is tied to a very small number of companies and individuals, many of whom do not return significant funds to the state’s coffers. He pointed out that California already collects relatively little revenue from the billionaire class. The state is estimated to gather about $3 billion annually from this group—roughly 1% of total revenue for the 2025-2026 period.
Despite its populist appeal, Proposition 40 failed to secure enough support from California residents and was ultimately rejected. Many will inevitably cite the lack of voter enthusiasm amid the massive funding advantage enjoyed by the proposal’s opponents. These expenditures included up to $379 million from billionaires like Google co-founder Sergey Brin, who funneled money into a multi-pronged media campaign to discredit the initiative. Associated Press reported that the opposition raised roughly 10 times more funds than the supporters.
Supporters of the measure made it clear that the fight is not over. Associated Press reported that backers indicated a similar tax could be put to a vote again in 2028.
