California Proposition 40, Billionaire Wealth Tax

Ken Gray July 21, 2026 0 Comments

What the bill is trying to fix

Federal budget cuts are taking away billions of dollars from California’s funding for:
- Medi‑Cal (health care for low‑income people)
- Public schools
- Food programs like nutrition assistance.
Medi‑Cal alone is projected to lose about $19 billion per year in federal money, or $190 billion over ten years, forcing the state and counties either to pay more or cut services.
The state has already started cutting Medi‑Cal, with provider cuts and benefit reductions expected to reach $7–8.6 billion per year later this decade.
Hospitals and clinics, especially in rural areas, are struggling or closing because Medi‑Cal pays them less than the true cost of care.

In short: the bill says California’s health care, education, and food safety nets are under serious financial stress, and that ordinary families will suffer if nothing is done.

What the bill does, in plain English

The 2026 Billionaire Tax Act proposes to:

Create a special tax on billionaires and ultra‑wealthy residents
- It targets people with very high levels of wealth (not just income) to raise new state revenue.
- The exact rates and thresholds are laid out later in the bill (beyond the excerpt), but the idea is: if your net worth is in the billions, you pay an extra state tax based on that wealth.
Use that money to protect core services
The new revenue is intended to:
- Backfill Medi‑Cal cuts, so low‑income families, seniors, and people with disabilities keep health coverage and services.
- Support public education so schools don’t lose funding as federal dollars shrink.
- Strengthen food and nutrition programs, especially for children and low‑income families.
Keep clinics and hospitals open
- By restoring and increasing Medi‑Cal funding, the bill aims to:
  - Keep maternity wards and emergency rooms from closing.
  - Help clinics pay staff and cover the real cost of care.
Protect families from medical and economic harm The bill’s findings stress that:
- Losing health coverage leads to worse health, more medical debt, and more hospital closures.
- Investing in Medi‑Cal helps people manage chronic illnesses, avoid expensive emergencies, and live healthier lives.

So, in simple terms:
The 2026 Billionaire Tax Act would tax the very richest Californians more, and use that money to keep health care, schools, and food programs funded despite big federal cuts—especially to Medi‑Cal.

My Thoughts on The Bill

Temporary Tax on the Rich? History Says NO

California has examples where a tax sold as temporary ended up becoming effectively permanent or was later extended again and again.

The best example: Proposition 30 / Proposition 55

California voters approved Proposition 30 in 2012, which temporarily raised the sales tax and top income tax rates on high earners to help the budget and schools. The sales tax increase expired, but the top income tax increase did not just disappear and stay gone.

Instead:

Proposition 55 in 2016 extended the high-income tax increase through 2030.
So what was sold as a temporary measure became a longer-term tax on upper-income Californians.

That is exactly the kind of thing skeptics point to when they say, “temporary taxes have a way of becoming permanent.”

Another example: Proposition 63

California also has Proposition 63, the Mental Health Services Act, which created a permanent 1% tax on taxable income over $1 million. Even if the original pitch sounded narrow or targeted, once the money stream is in place, lawmakers tend to protect it and expand around it rather than give it back.

Why people don’t trust “one-time” taxes

The concern is simple:

Politicians love a one-time tax when they need cash.
Once the money starts flowing, agencies, special interests, and budget writers quickly build spending around it.
Then the state claims it can’t afford to let it expire.

That’s why critics say: once government gets its hand in your pocket, it rarely lets go.

How this applies to the billionaire wealth tax

Even if supporters promise the wealth tax is “temporary” or “one-time,” the concern is that:

the state will spend the money,
then come back later and say the programs now depend on it,
and then push to renew it or create something similar.

So the historical lesson is not just about income tax. It’s about a pattern: a tax starts as temporary, then becomes normalized, then becomes hard to repeal.

California doesn’t have a revenue problem; it has a spending discipline problem. Before the state reaches into billionaires’ pockets with a one‑time 5% wealth tax, it should clean up wasteful spending, fix its underground economy, and end the “use it or lose it” budget mentality that burns through billions with little to show for it.

The billionaire wealth tax: a risky shortcut

The proposed 2026 Billionaire Tax Act would impose a one‑time 5% tax on the net worth of California billionaires as of January 1, 2026. The Legislative Analyst’s Office estimates:

The tax would raise “tens of billions of dollars” spread over several years.
But it would likely cause an ongoing drop in income tax revenues of hundreds of millions of dollars or more per year as wealthy residents move, change residency, or restructure their finances.

We’re already seeing that behavior:

Some wealthy Californians are moving out of state or changing residency.
Others are giving away assets, ramping up philanthropy, or restructuring real estate and business holdings to drop below the $1 billion threshold rather than hand more money to Sacramento.

In short: the wealth tax promises a one‑time windfall, but risks permanent damage to the tax base, investment climate, and high‑paying jobs.

Wasteful spending: roads and rail as Exhibit A

High spending, bad roads

California is among the highest‑spending states per mile of state‑controlled highway, yet it ranks near the bottom nationally in pavement condition and cost‑effectiveness.

Reason Foundation’s Annual Highway Report shows:

California’s highway system ranks 47th–49th in overall cost‑effectiveness and condition.
The state spends very large sums per mile, but still has poor pavement, heavy congestion, and unimpressive safety outcomes.

That means billions go into the transportation system, yet drivers still get crumbling roads and endless congestion. This isn’t a revenue gap; it’s a management and priorities gap.

High‑Speed Rail: billions into a tunnel of waste

The high‑speed rail project is the clearest symbol of California’s waste problem:

Voters approved $9.95 billion in bonds in 2008, with promises of a modern, high‑speed rail line.
Costs have exploded; estimates and analyses now put total project spending and commitments well above $100 billion, with critics describing more than $111 billion shoveled “into the furnace of government waste.”
The Federal Railroad Administration has terminated about $4 billion in unspent federal funding, citing “poor management and missed deadlines” and saving federal taxpayers that money.

Despite all this, the system is still incomplete, repeatedly delayed, and far from delivering the promised statewide network. That’s tens of billions tied up in a project that has yet to provide proportional value to taxpayers.

The underground economy: billions left untaxed

California’s underground economy—off‑the‑books work, misclassified labor, unlicensed operations—drains far more revenue than most people realize.

State and independent analyses estimate:

The underground economy employs 15–17% of the state’s labor force and generates $60 to $140 billion per year in economic activity.
This translates to an annual loss of $8.5 to $28 billion in corporate, personal, and sales/use tax revenue.
A state commission report says California loses at least $8.5 billion per year in tax revenue from the underground economy, and that state enforcement efforts are disjointed and under‑resourced.

Instead of taxing wealth once and hoping billionaires stay put, California could:

Aggressively enforce licensing and payroll laws in construction, auto repair, food service, car washes, nail salons, and other sectors where off‑the‑books labor is common.
Crack down on worker misclassification and cash payments that evade payroll taxes and workers’ comp.
Coordinate enforcement across agencies, as the Little Hoover Commission recommends, to “put California’s underground economy out of business.”

This wouldn’t just raise revenue; it would increase wages for legal workers, level the playing field for compliant businesses, and move billions in activity into the formal, taxable economy.

Wage gains from cleaning up the underground economy

When employers can no longer rely on under‑the‑table labor or undocumented workers paid below legal standards, several things tend to happen:

Wages rise in sectors that depended heavily on cheap underground labor (construction, certain services, some agriculture).
Legal workers gain bargaining power because employers must compete for a smaller pool of authorized labor.
Employers face stronger incentives to train, retain, and fairly compensate workers who are on the books.

Studies of California’s informal construction economy show tens of thousands of workers earning far less than formal employees and contributing far less in taxes and insurance. Moving these jobs into the formal sector pushes wages and contributions up, without needing a new wealth tax.

“Use it or lose it”: the budget mentality that wastes billions

California’s budget culture magnifies waste:

Agencies know that if they don’t spend all of their allocated funds, future budgets may be cut.
This creates a “use it or lose it” mindset where money is spent quickly at the end of the year—often on low‑priority items, rushed contracts, or unnecessary projects—just to protect next year’s funding.
Combined with one‑time federal funds and emergency programs, this mindset encourages short‑term spending binges instead of long‑term discipline.

The result is structural waste: the state doesn’t just lose money to fraud; it loses money to rushed, poorly targeted spending that happens because the budget rules reward spending more than they reward efficiency.

Better ways to strengthen California’s finances

Instead of taxing billionaires’ net worth, California could:

Attack the underground economy with serious enforcement and leadership, recovering $8.5–$28 billion/year in tax revenue that is currently lost.
Fix infrastructure spending by:
- Prioritizing basic road maintenance over flashy but failing projects.
- Reining in cost overruns and focusing on cost‑effective designs.
Reform procurement and project oversight to avoid another high‑speed rail‑style boondoggle.
End “use it or lose it” incentives by allowing agencies to carry over savings, rewarding genuinely lower‑cost operations instead of penalizing them.

Taken together, these steps could realistically free up many billions of dollars per year—likely as much or more than the ongoing revenue California would lose from driving high‑income residents, investors, and entrepreneurs away with a wealth tax.

Conclusion: Fix spending first, then talk about new taxes

California’s leaders should not ask billionaires—or anyone—to pay a one‑time wealth tax while:

roads remain among the worst in the country despite high spending,
high‑speed rail has consumed tens of billions with little return,
the underground economy bleeds $8.5 to $28 billion in tax revenue annually, and
agencies race to spend every dollar to avoid cuts, instead of saving or improving efficiency.
once politicians have their hands in your pockets, they never let go.

An honest reform agenda would clean up waste, enforce existing laws, and reward efficient agencies before it tries to tax wealth. Until California proves it can use the money it has responsibly, a billionaire wealth tax looks less like justice and more like a dangerous distraction from the state’s real problem: how it spends, not how much it can take.