US state of California: referendum on tax for the rich fails

Voters in the US state of California have rejected a rich tax on the net worth of the ultra-rich. According to preliminary projections, a corresponding popular initiative that voters voted on last week failed. Even though the counting of votes has not yet been completed, the no votes are unassailable by more than six percentage points.

The initiative, known as Proposition 40, required California residents whose net worth exceeded $1 billion to pay a one-time 5 percent tax on their wealth. Much of this revenue should be used to offset cuts in government health care funding. Proponents of the tax said it could have raised estimated revenue of more than $100 billion within five years.

Senator Bernie Sanders of Vermont, a leader in the progressive left-wing political scene, called the proposal ahead of the election a significant step to curb extreme wealth inequality and ensure that the super-rich pay their fair share. The state's Democratic governor, Gavin Newsom, warned that the measure could encourage the wealthiest residents to leave California - and thus withdraw their tax money.

According to the Washington Post, opponents of the measure had raised about 250 times more money than its supporters. Some wealthy residents of the state, including Google co-founders Sergey Brin and Larry Page, had already begun cutting their ties to the state before the vote. Brin himself had contributed more than $100 million of his personal wealth to defeat the wealth tax. Facebook founder Mark Zuckerberg had also warned that he would turn his back on California if the tax was introduced.

Proponents of the proposed tax — including the influential SEIU United Healthcare Workers West union — argue that it is necessary to offset cuts in federal funding. “It’s time to raise these taxes so we can ensure our health care system continues to be resilient,” said Lorena Gonzalez, president of the California Labor Federation CFLU.

But some traditional Democratic allies, including Planned Parenthood and the California teachers union CTA, spoke out against the plan. They expressed concerns about the distribution of tax revenues and the potential impact on the state's budget. California's budget is heavily dependent on income taxes from the state's wealthiest residents.

Wealth taxes on the rich have been tried around the world before - with extremely disappointing results. Even French economist Gabriel Zucman, a vocal wealth tax advocate, writes in his latest book that previous wealth taxes have “on the whole failed miserably.” A key problem is that wealth taxes often have loopholes that allow the rich to keep their assets safe, he wrote. The debate over the Californian proposal was also about the fact that some super-rich people would move their place of residence in order to avoid the tax.

To avoid these shortcomings from previous property taxes, the initiators of “Prop 40” tried to close potential loopholes. The tax was designed as a one-time, retroactive levy that is linked to the billionaires' residence as of January 1, 2026. This was intended to prevent those affected from simply escaping the tax burden by changing their place of residence.

In addition to the aforementioned Google co-founders Brin and Page, several other wealthy people had already left California before the deadline. These other billionaires include the controversial German-American tech investor Peter Thiel and the director and film producer Steven Spielberg. The previous migration alone would have reduced potential wealth tax revenue by around $30 billion, according to Stanford economist Joshua Raugh.

The failure of the tax on the super-rich in California is likely to put further plans of this kind on hold - at least until the 2028 presidential election campaign.