California’s billionaire tax measure risks long-term growth for a sugar-high solution

This fall, California voters will decide whether billionaires should pay a one-time tax to help address a Medi-Cal shortfall. Since opponents placed two offsetting measures on the ballot, CalMatters asked guest authors to argue for the vote combinations that would either fully approve or fully nullify Proposition 40. Below, a business association head suggests the measure could scare off innovation, risking revenue that funds California’s safety net. The opposing view: A nurse says Californians face soaring costs and billionaires need to pay their fair share.

California has always been a place that bets on the future. From semiconductors and personal computing to biotechnology, clean energy, quantum, fusion power and AI, our state is the place that turns groundbreaking ideas into industries that transform the world.

That innovation does more than create successful companies. It produces good jobs, expands opportunity through an innovation ecosystem, and generates revenue California uses to support schools, healthcare and our social safety net.

Proposition 40, on the November ballot, would put that entire ecosystem at risk. It could ultimately hurt the Californians it is intended to help.

The measure would impose a one-time tax of 5% on Californians with more than $1 billion in covered assets, to help fund healthcare and other essential services. Those needs are real, especially at a time when the cost of living is on the rise and Medi-Cal faces new shortfalls. California must protect the programs residents depend on, especially as federal funding remains uncertain.

Prop. 40 is not the way to do it. Voters should say ‘no’ and instead back two other commonsense measures on that ballot, Propositions 41 and 42.

The nonpartisan Legislative Analyst’s Office estimates that Prop. 40 would produce an uptick of tens of billions of dollars in near-term revenue. But this is a sugar high. The LAO also projects an ongoing decrease in state income-tax collections of hundreds of millions of dollars or more each year if taxpayers leave California.

That is Prop. 40’s fundamental flaw. It would risk dependable, recurring revenue for a temporary infusion of money. Once that money is spent, California could be left with a smaller tax base to support essential services year after year.

This is not the way to spur business dynamism which supports innovation and job creation.

The consequences could extend beyond tax revenues. Founders and CEOs help determine where companies grow, workers are hired and investments are made. California benefits when those leaders and their companies remain rooted and invested in the success of our state.

California endures as the world’s leading center of technological innovation because of its exceptional universities, skilled workforce, access to capital and a culture that rewards bold thinking. These advantages have helped California companies develop lifesaving medicines, cleaner energy and technologies that improve daily life.

But this leadership is not guaranteed. Other states and nations are investing heavily in their innovation economies. California should reinforce the reasons companies choose to build here, not put out a big sign that encourages entrepreneurs to leave our state.

The problem is that Prop. 40 would, in practice, tax the estimated value of businesses and ideas before they are actually sold or make any money. This approach doesn’t work for companies that spend years on research with no guarantee of success.

For example, a biotech company might spend 10 years creating a new medicine, or a clean-energy startup might need years of funding before it ever turns a profit. Under this plan, founders could end up with a massive tax bill for value that only exists on paper, without having the actual cash to pay it.

The larger concern is what California could lose if more companies are formed or expanded elsewhere: jobs, investment, technological progress and future tax revenue.

To be sure, successful business leaders should contribute to the state that helped make their success possible. California already taxes wages, business income, dividends and capital gains. Those who benefit most should help support the institutions that make broad-based prosperity possible.

That is why voters should reject Prop. 40 and support Proposition 42.

Prop. 42 would establish a clear rule against new state taxes based simply on ownership of financial assets, business interests and intellectual property. It would also prevent certain new taxes from being applied retroactively.

The measure would not prevent California from taxing income or realized gains. It would preserve a sensible distinction between taxing economic gains and taxing ownership itself, while giving founders and CEOs predictable rules before deciding where to grow a company and hire workers.

Proposition 41 also deserves support. Greater review, transparency and auditing of special taxes would help voters understand how proposed taxes would operate and whether the programs they fund are delivering results.

California does not have to choose between technological leadership and strong public services. Our innovation economy helps make those services possible.

Prop. 40 makes the wrong bet: temporary money today at the risk of losing companies, jobs and dependable revenue tomorrow. Props. 41 and 42 offer a more responsible path grounded in accountability, predictability and confidence in California’s future.