California Billionaire Tax: Could an Overlooked Rule Sink Prop 40?

A billionaire-funded committee has put more than $300 million into the fight over Prop 40, and two rival measures could cancel it even if it wins. Do California voters know what they are actually choosing on November 3?

A ballot measure can win and still lose.
California’s Proposition 40 would levy a one-time 5% tax on billionaires, and voters decide its fate in ten days. But two rival measures, Props 41 and 42, could cancel it even if it wins a majority, and one committee has put more than $304 million into the three-measure fight, according to a Capital & Main analysis of state records [state campaign finance records, through Oct. 20]. Whatever your view of the tax, the rules and the money deserve a closer look.

What Does Prop 40 Actually Do?

Prop 40 would impose a one-time 5% tax on the net worth of California residents worth more than $1 billion, roughly 200 people [CalMatters]. It exempts pensions and retirement accounts. Most of the money would fund health care, and the measure gives the Legislature broad authority over how to spend it [CalMatters].
Backers, led by the health care workers’ union SEIU-United Healthcare Workers West, say it would backfill federal health care cuts. Opponents say it will drive wealthy residents and their income taxes out of the state and lacks oversight to ensure the money reaches patients [Capital & Main]. Both claims are predictions about the future, not facts about it. That matters, because the campaign spending is built on competing forecasts of what a tax on roughly 200 people would do to the state’s budget.

Who Is Spending What on Props 40, 41 and 42?

A committee called Building a Better California, funded overwhelmingly by billionaires and other ultrarich donors, has given $118.5 million to the committee opposing Prop 40 and another $186 million to support Props 41 and 42 [Capital & Main analysis of state records, through Oct. 20]. Google co-founder Sergey Brin is its largest donor at $102 million [CalMatters; Capital & Main].
Prop 40’s supporters have raised far less. SEIU-UHW has contributed nearly $32 million. Overall, opponents have outraised supporters by more than 9 to 1, and the wealth tax fight accounts for nearly half of all spending on California’s November ballot measures [Capital & Main]. Totals vary by outlet and reporting date, and they are still climbing.
9 to 1. That is the funding gap across the three measures. The question: if one side is outspent that badly, can voters still hear both?
Opponents of the billionaire tax have outraised supporters more than 9 to 1. Whatever you think of Prop 40, a gap that size deserves daylight.

Can a Winning Prop 40 Still Fail?

Yes. Props 41 and 42 are written as competing measures. Prop 41 would bar taxes that sidestep a 1970s state spending limit, which Prop 40 is written to do, and require the state auditor to review new tax proposals. Prop 42 would ban new taxes on financial assets, private businesses and most other forms of wealth, and block taxes from applying retroactively [CalMatters].
When conflicting measures all pass, the one with the most votes becomes law. If either 41 or 42 outpolls Prop 40, the billionaire tax does not take effect, even if Prop 40 passes. If Prop 40 outpolls both, it takes effect and voids them [CalMatters].
The contradiction is real. The Public Policy Institute of California found slim majorities of likely voters backing all three measures [CalMatters]. Governor Gavin Newsom, who opposes the tax, has endorsed Prop 42 [Fortune; KESQ].
If a ballot measure can win a majority and still fail, do California voters know what they are actually voting on?

Can a measure win a majority of the votes and still lose?

What Do the Revenue Numbers Really Say?

Fiscal accountability cuts in both directions here. The measure’s projected windfall is roughly $30 billion. Stanford economists estimate that billionaire departures have already eliminated nearly 30% of the proposed tax base, and warn that lost income-tax revenue could turn that windfall into a $39 billion loss [Fortune, summarizing the Stanford estimate]. The researchers built it from Forbes rankings, real estate reports and public relocation announcements, so it is a projection, not a measurement.
Brin himself reportedly moved to Nevada last year [New York Times, via Capital & Main]. Supporters answer that the tax is one-time, applies to about 200 people, and is small relative to the fortunes involved.
The honest summary is that nobody knows the net result in advance. Voters are being asked to approve an uncertain estimate with a very large number attached.

What Do Supporters of Prop 40 Actually Believe?

Supporters make a serious argument. They say a federal law passed last year created roughly a $100 billion shortfall in health care funding, that those taxed can easily afford 5% of their net worth once, and that the donors fighting the measure are protecting their own wealth [Capital & Main, reporting supporters’ claims]. An SEIU-UHW official argues Brin could earn the tax back within months. Polling shows real support: 45% in a mid-September UC Berkeley IGS poll and 48% in an NBC News poll [published polls].
Some of that holds. The funding gap is real, and the biggest donors are fighting a tax on themselves. But opposition is not only billionaires. Newsom, the California Teachers Association, the California Medical Association and Planned Parenthood also oppose Prop 40, and a memo from some of those groups argues the money could offset state Medi-Cal cuts instead of adding to health funding [CalMatters; Capital & Main]. That is a fiscal-accountability question, not a class-war one: if voters approve a new tax for health care, what guarantees where it goes?

Is the Money the Problem, or the Confusion?

Free speech belongs in this debate. Donors are entitled to spend their own money on ballot measures, and unions are entitled to answer. The principle conservatives defend for their own causes applies equally to billionaires and to labor.
The bigger problem is clarity. Three overlapping tax measures, a tiebreak rule most voters have never read, and hundreds of millions of dollars in advertising make an informed vote harder. CalMatters describes the three as giving opposing answers to a single question [CalMatters]. Disclosure only works if voters use it, and every dollar here is public record, as is the rule that decides the winner.

What Should Voters Do Before November 3?

Start with the official voter guide and the Legislative Analyst’s analyses, which lay out what each measure does and costs. Then check who funds each campaign, because the donors behind a measure often explain its fine print.
Finally, decide the three votes separately. A yes on Prop 40 and a yes on Prop 42 point in opposite directions, and the ballot will not stop anyone from voting for both. Read each measure on its own terms before marking any of them.
Disclosure works only if voters read it. The money behind Props 40, 41 and 42 is public record, and so is the rule that decides which one wins.
Key Questions This Story Raises:

• If Prop 40 wins a majority but Prop 41 or 42 gets more yes votes, was the voters’ will honored?
• What guarantees that wealth-tax revenue would add to existing health funding rather than replace it?
• Should competing measures be written so voters can see the consequences on the ballot itself?

So is the real story a fight over a tax, or over who shapes the choice? The honest answer is both. Voters on every side deserve a clear ballot and a fair hearing.
The real question isn’t whether billionaires should pay more or less. It’s whether voters will know what their ballot actually decides.
Still have questions? Stay informed: subscribe for daily coverage of California ballot measures and money in politics. Think others need to see how the rules work? Share this article. Want your voice to count? Read the nonpartisan Legislative Analyst’s analyses of Props 40, 41 and 42 at lao.ca.gov, look up each campaign’s donors on the Secretary of State’s campaign finance site, and make a plan to vote by November 3.

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