Guest Commentary — Ventura County Taxpayers Association — Ballot Warning: Prop 1

Why the “Billionaire Tax” Is Just a Beta Test for the Middle Class

What is Prop 1?

California has 27% of all billionaire wealth in the US, despite having only 12% of the country’s population. This concentration has attracted attention from policymakers interested in this potential source of revenue.

Proposition 1 targets the net worth of California’s 210-215 billionaires. Backed by the Service Employees International Union-United Healthcare Workers West (SEIU-UHW), it aims to backfill federal funding cuts to the social safety net.

By taxing total net worth, politicians aim to prevent the ultra-wealthy from avoiding taxes by simply not “realizing” their gains (i.e., not selling their stock). This would represent a significant shift from taxing income to taxing assets.

The proponents estimate that the tax could generate $100 billion in additional revenue over five years. The funds would be used for Medi-Cal, to address potential community hospital and emergency room closures, and to provide food assistance such as CalFresh. Another stated purpose is to address wealth inequality.

The potential negative impacts of passing Prop 1 may surpass the short-term benefits though. The following points outline these concerns.

Taxing “unrealized gains”—money not yet received from unsold assets or stocks—may pose several challenges.

First, there are questions regarding Prop 1’s constitutionality. It could violate Article 13 of the California Constitution which covers personal property taxes.

Second, Prop 1 may pose valuation challenges. Determining the value of complex assets and collections each year may be difficult, including personal property such as family heirlooms. Asset values could also fluctuate, raising questions about how unrealized losses would be addressed.

Third, Prop 1 would require an expanded audit system to assess assets annually. This would likely increase the size of the Franchise Tax Board.

The federal income tax originally applied to 0.3% of the US population (358,000 people out of a total 97.2 million) in 1913. After the tax collection system was established, its application subsequently broadened in 1918 to fund World War I.

Proposition 1 is aimed at 0.0006% of California’s population, or 215 out of 39 million residents. The scope of the measure could potentially broaden once implemented, for the following reasons.

California’s budget relies significantly on a relatively small group of high-earning residents. Currently, the top 1% of earners contribute nearly 50% of the state’s personal income tax. The migration of these earners could have notable budgetary impacts.

If some of these 215 billionaires were to relocate to states with different tax structures, California could lose the associated annual income tax, business tax, and local spending, in addition to the proposed billionaire’s tax. Personal income tax, business income tax, and sales tax comprise most of the state’s General Fund.

A 2026 study by the California Tax Foundation suggests the tax proposal has influenced nine billionaires to relocate, resulting in an estimated annual recurring loss of $2.77 billion in tax revenue.

The nonpartisan Legislative Analyst’s Office (LAO) notes that a significant relocation could result in the state losing hundreds of millions of dollars in forgone income tax annually, potentially affecting the proposal’s long-term fiscal outcome.

Some policymakers, including Governor Newsom and San Jose Mayor Mahan, have raised concerns about California’s fiscal structure once Prop 1 expires. Funding ongoing programs, such as Medi-Cal or hospital subsidies, with a temporary source of revenue may create long-term challenges. After the 5-year payment period for Prop 1 concludes in 2031, the $20 billion annual funding would end. The state could face decisions about modifying program funding or seeking new revenue sources (i.e. taxes).

Additionally, the Billionaire’s Tax may impact students in K-14. The measure conflicts with Proposition 98, a 1988 constitutional amendment guaranteeing minimum K-14 education funding.

Under Proposition 98, California must allocate about 40% of its General Fund to K-14 education. Prop 1 includes a provision to exclude this tax revenue from the General Fund when calculating the Prop 98 guarantee.

Critics argue that schools could receive $40 billion (40%) instead of the $10 billion (10%) allotted by the measure.

To implement a ‘total net worth’ tax, California must build a massive, permanent audit-and-enforcement bureaucracy. Every year, state auditors must value private businesses, art collections, real estate, and intellectual property. Once this wealth-tracking system is in place and funded, it becomes easy for the Legislature to lower the threshold from billionaires to millionaires—and eventually to the middle class. Legislators already included a provision for this. The act has ‘Legislative Authority’ on page 26, allowing Sacramento to amend the rules with a two-thirds vote.

Stifling California’s Innovation Engine

California is recognized as a central hub for venture capital and startups. Taxing unrealized gains could change the risk and reward calculations for business founders. Some may choose to establish their companies in other states with different tax structures. Over time, venture capital may follow these founders, potentially affecting job creation and secondary tax revenue in California.

Lessons From Europe

Twelve European countries tried wealth taxes in 1990; only three still have them. France lost 42,000 millionaires during the period of its wealth tax. By contrast, Germany, after finding administrative costs as high as 12% of revenue, repealed its wealth tax in 1996. Sweden did likewise in 2007, especially after high-profile business founders left. Comparative studies in Scandinavia found that for every $1 raised by a wealth tax, up to 76¢ could be lost to other taxes due to emigration and an economic slowdown. These results show a recurring pattern: wealth taxes often cost more than they raise, primarily due to migration and reduced economic activity.

It’s Up to You

The Billionaire’s Tax will appear on the November 2026 ballot. We encourage voters to review the proposal carefully and consider its potential impacts. An evaluation of the proposition’s details suggests it may have significant long-term effects.

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About the Ventura County Taxpayers Association (VCTA)

Formed in 1954, The Ventura County Taxpayers Association is a 501(c)4 nonprofit organization dedicated to a non-partisan, fact-finding mission, emphasizing issues that affect Ventura County. We inform taxpayers, promote the wise use of public funds, oppose waste, advise public officials regarding issues of concern to taxpayers and recommend positions that will best serve the taxpayers’ interests. Our number one goal is to promote the wise use of public money and to oppose waste.

Ventura County Taxpayers Association

PO Box 3878

Ventura, CA 93006

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