SACRAMENTO, Calif. (WOWO) — A proposed wealth tax targeting California billionaires could face years of legal challenges if voters approve the measure in November, according to a new analysis from the National Taxpayers Union Foundation.
Proposition 40, which will appear on the November 3 ballot, would impose a one-time 5% tax on individuals and trusts with more than $1 billion in assets. The measure is expected to affect approximately 200 taxpayers and would be the first state-level tax of its kind in the United States.
Supporters estimate the proposal could generate $100 billion to help fund healthcare, education and food assistance programs. However, an analysis from Stanford University’s Hoover Institution estimates the tax would collect approximately $40 billion over five years before accounting for broader economic effects.
The Hoover analysis also projects that California could ultimately lose approximately $25 billion in net revenue as wealthy residents relocate and the state collects less from other taxes.
In a report released Tuesday, October 13, the National Taxpayers Union Foundation identified several potential constitutional challenges to the proposal, including concerns involving due process, interstate commerce, equal protection and property rights.
One major concern involves the proposal’s residency requirements. The tax would apply to qualifying individuals who were California residents on January 1, 2026, even if they moved out of the state before voters approved the measure.
The proposal would also apply to worldwide assets, raising questions about California’s authority to tax property and investments located outside the state.
Additional concerns involve determining the value of privately owned businesses, intellectual property and other assets that are difficult to assess. The foundation argues that significant penalties for inaccurate valuations could lead to prolonged disputes between taxpayers and state officials.
Supporters of the measure hope the tax will provide additional funding for public services, while opponents question its constitutionality and potential economic consequences.
If approved, Proposition 40 would allow certain constitutional challenges to move through an expedited court process. However, individual disputes involving residency, asset valuations and tax liability could continue for years.
California voters will decide the measure during the November 3 general election.
For more information, read the October 13 analysis from the National Taxpayers Union Foundation, titled Taxpayers Will Challenge California Wealth Tax Proposal If It Passes.
