Democrats are right about the problem. They are wrong, however, about the solution.
That is the honest way to frame Proposition 40, the ballot measure Californians will vote on this November. It would impose a one-time 5% tax on the accumulated wealth of taxpayers with assets valued over $1 billion – including unrealized gains – to help fund health care following federal cuts.
The instinct behind pursuing such a policy is understandable. Wealth in the U.S. is extremely concentrated, perhaps more so than at any time since the early 1900s, and the ultra-rich can utilize numerous strategies to pay a lower effective tax rate than other Americans.
Nationally, 62% of Americans say billionaires pay too little in taxes, while a similar 59% want the government to step in with policies that bridge income inequality, per YouGov polling.
For California specifically, a state facing chronic budget shortfalls and home to some of the country’s wealthiest individuals, Prop 40 has an obvious populist appeal.
Indeed, in the most recent Berkeley Institute of Governmental Studies survey, support for the measure outpaced opposition by 7-points (48% to 41%).
That has slightly ticked down since January, when polling found a 10-point advantage for supporters, though the decline is within both survey’s margin of error.
However, it is noteworthy that in the Berkeley IGS poll, support fell short of 50%, which poll director Mark DiCamillo suggested “could be an issue.”
DiCamillo explained that while the measure “got an early lead…its not a very large lead…usually, for ballot propositions, you want the yes side to be above 50% [in polls at this point], and that’s not where it is.”
Put another way, only a 7-point margin despite an endorsement from the California Democratic Party and general support for government action suggests that something could be dampening support: recognition that this tax sounds much better as a headline than it would be as policy.
Critically, California is uniquely vulnerable to the proposed levy’s consequences. As of 2024, the state’s top 1% of earners accounted for between 40% and 45% of all personal income tax revenue.
If wealthy residents stay, that concentration is not an issue, but if they leave, it becomes a massive vulnerability. Already, some billionaires have left, and while it is just a handful thus far, the tax would only target roughly 200 people, so a few leaving has a significant impact.
According to Fortune Magazine, the six billionaires who left as of March represented over one-quarter of the projected $100 billion that Prop 40 backers project the measure would raise.
Further, in January, Mike Solana of the Free Press spoke to 21 billionaires – roughly 10% of the targeted population – and reported that “nearly all of them are planning to flee.”
To be sure, the tax’s defenders have a compelling rebuttal: predicted mass stampedes of the ultra-wealthy rarely materialize, a point backed by academic research and California’s own experience.
After the state passed a 1% tax on millionaires in 2004, “the highest-income Californians were actually less likely to leave.”
Where this defense falls short is that Prop 40 is not a modest adjustment, and California does not need a mass exodus to feel the pain. It only needs a few more people like Elon Musk, Larry Ellison, or Peter Thiel to make the tax ineffective even if it passes.
If this sounds speculative, Europe already ran this experiment. In the 1990s, over a dozen European countries had some form of wealth taxes.
Today, just three do. One nation after another repealed them, citing similar problems: capital flight, raising less revenue than projected, and stunted economic growth.
When Norway – one of the three countries still with a wealth tax – raised its levy in 2022, more high-net-worth residents left the country than in the previous 13 years combined.
Of course, moving to a different U.S. state is considerably easier than moving to a different European country, underscoring just how vulnerable California is.
Defenders of the tax also point to Massachusetts, which instituted a 4% surtax on household income over $1 million in 2022. It is true that the state has raised a relatively large amount – $3.38 billion from July 1, 2025, to June 30, 2026 – but that is not the whole story.
The year after that tax passed, wealthy residents fled, taking a combined net worth of $4.2 billion, per Bloomberg. Census data suggests the outflow continued in later years, with Mass Opportunity noting that the top two destinations for former Massachusetts residents were “lower-cost states of Florida and New Hampshire.”
Not only would Prop. 40 target people with even more means to leave, but its increased scope – taxing unrealized gains and wealth rather than income – likely further incentivizes those residents.
At the same time, California would be telling those who built companies, created jobs, and generated the tax base the state relies on that their success is now a liability, not an achievement.
In effect, that could leave the state facing the worst of both worlds – driving out more revenue than it raises while doing long lasting damage to the economy by discouraging new business formation.
That concept is fundamentally opposed to American capitalism and not a policy Democrats should promote.
To that end, this is not to minimize the very real impact of widening wealth inequality. Many Americans feel the American Dream is no longer possible and that the system is stacked against them.
Populism, on both the political right and the left, is becoming more popular precisely because Americans are tired of extreme wealth concentration.
However, wealth taxes are not the solution, even if they generate headlines for politicians seeking higher office.
Ultimately, the promise that effort and risk will be rewarded is not incidental to the American economy; it is the engine.
Legislating against that promise, even in the name of fairness, threatens to upend something California cannot easily rebuild.
Before Democrats make the wealth tax a national cause – as some like Sen. Elizabeth Warren and Gov. Gavin Newsom have pushed – they should look at what it has already cost nearly everywhere it has been tried, and ask whether punishing success is the correct message for a party still working to win back the middle class.
Douglas Schoen is a longtime Democratic political consultant