California Proposition 40 Endgame: Newsom Backs the Ban, Hoover Scores a Net Loss, and the FTB War-Room Problem
Three weeks before the November 3 vote, Proposition 40 — the first-ever popular vote on a wealth tax, a one-time 5% levy on roughly 200 California fortunes above $1 billion, payable over five years, with 90% of an estimated $100 billion earmarked for Medi-Cal — is fighting a three-front war: dueling counter-measures, a record spending gap, and an implementation problem even supporters call enormous.
The dueling-measure endgame got a governor's blessing. On Friday, October 9, Gov. Gavin Newsom endorsed Proposition 42, the Sergey Brin-funded counter-measure that would ban retroactive taxes and prohibit any new state tax on personal property — pensions, 401(k)s, investments, business holdings, art — permanently barring the state from wealth taxation. "We all agree that Californians deserve to have their retirement and life savings protected from new state taxes so those savings are there when they need them," Newsom said in a statement released by Prop 42's proponents (CalMatters). SEIU-UHW's Debru Carthan responded that Newsom is "in lock step with his billionaire backers… He'd rather millions of children and families lose their healthcare than ask a couple hundred billionaires to finally pay their fair share." Under California's conflicting-initiative rule, whichever of Prop 40, 41, or 42 gets the most "yes" votes takes effect — so Prop 40 can "pass" and still die. The same governor simultaneously proposes a national minimum tax on $100M+ net worth (see The 2028 Wealth-Tax Primary Takes Shape: Sanders–Khanna 5% National Bill vs. Newsom's $100M+ Minimum Tax).
The money and the polls. Opponents have raised more than $205 million to stop Prop 40; Brin alone has poured over $138 million into the opposition, including the two counter-measures (CalMatters via LAist). Polling is genuinely split: the September PPIC survey shows a slim majority (52%) supporting Prop 40 (CalMatters tax-measures guide), the Berkeley IGS/LA Times poll (Sept 25) had it 45–42–13 (ABC7), and prediction markets give it only ~30% — pricing in the unanswered ad blitz (The New Yorker, Oct 12).
The revenue claims are mirror-image elasticity bets. Proponents' $100 billion assumes the ~200 billionaires stay put and their assets hold value. The opposition's first ad round leaned on a Hoover Institution study (Joshua Rauh, Benjamin Jaros, Aharon Friedman) envisioning "an 'Atlas Shrugged' scenario in which Proposition 40 drives so many billionaires out of California that, rather than raising a hundred billion dollars for the state, it leads to twenty-five billion in lost tax revenue" (New Yorker). Hoover's companion constitutional paper (Oct 7) argues the BTA violates Due Process (taxing worldwide wealth based on one day's residency, Jan 1, 2026, and a retroactive residency date on a "wholly new tax"), the dormant and foreign Commerce Clauses, the Takings Clause, and the Bill of Attainder prohibition, and that "litigation could delay collection for years." The best new empirical counterweight is the NBER's Norway study (NBER's Norway Verdict (2021–2025): Flight Is Real but Cost Only ~3.5 Points of a 75% Revenue Gain): flight there was real but cost only ~3.5 points of a 75% revenue gain — suggesting Hoover's elasticity assumptions may be too pessimistic1, though Prop 40's one-time 5% rate is far outside Norway's 1.1% annual design. Joel Slemrod's caution cuts the other way: the European repeals are "not immediately applicable" to Prop 40 because those taxes "differed significantly in design: Tax rates were much lower, they were intended to be permanent and the money was not earmarked" (LAist/CalMatters) — meaning neither side's estimate has a true precedent.
The administrability core. The Franchise Tax Board — which has only ever collected income and corporate tax, and currently "doesn't appraise property" — would have to build, within six months, a system to value "billionaires' stock, investment accounts and business interests, but also their art collections, wine vaults, cars and anything else that stores wealth," while running residency audits of uncooperative centibillionaires (the Hyatt litigation lasted a quarter-century and reached the Supreme Court three times). UCLA's Kirk Stark: "It can be done… But it's going to take a huge investment of resources to actually pull it off." Former FTB attorney Chris Parker: the board has "no way of knowing anyone's net wealth." Former Controller Betty Yee, who supports wealth taxes in principle: "If I were still controller, I'd have the Franchise Tax Board in a war room right now trying to figure this out," warning the tax "could collapse under its own weight" (Politico, Oct 7). Brin, Page, Thiel, and Don Hankey have already left the state, and tax lawyers report at least half a dozen unpublicized billionaire exits; tax attorney Jon Feldhammer's advice captures the retroactivity trap: there's a "reasonable argument that the law may be unconstitutionally retroactive — but to take advantage of that, you're going to have to leave."
Political isolates worth noting: only 3 of 52 California House members and 10 state legislators have endorsed Prop 40 despite the state Democratic Party's endorsement; the California Teachers Association opposes it (its own Prop 3 would make the 13% millionaire income tax permanent — a direct competitor for the same revenue); and Emmanuel Saez, who helped design it, says "Proposition 40 is the best shot we've ever had… If it passes, it will be a revolution" (New Yorker).
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An instance of The measured cost of wealth-tax flight is a few points of revenue, not a collapse. — The finding deploys the measured record directly against the −$25B collapse score while Slemrod notes neither side's estimate has a true precedent — assumed elasticities on both ends, measured flight near the floor. ↩︎