California considers a wealth tax on billionaires

California has more billionaires than any other state in the country. In this fall, California voters are going to be deciding whether those billionaires should be a little less rich. It's a proposal that is actually dividing some Democrats in a way that might surprise you. Let's dig in. [music] It's the MPR Politics Podcast. I'm Miles Parks. I cover voting. I'm Tamer Keith. I cover politics. And KQED Correspondent Marisa Lagos is joining us now from San Francisco. Hi Marisa. Hey. Hey, so you have been covering this super fascinating proposition that's going to be on the ballot for California voters this year. Tell us about it. Yeah, this is called Prop 40. It was written by a health care union and it would basically impose a one-time 5% tax on anyone who has assets worth a billion dollars or more and lived in California as a January 1st of this year. So that's an estimated like 200 or so folks and the money would be used to essentially backfill the really steep federal budget cuts that are coming under President Donald Trump's one big beautiful bill. You know, the union basically says, "Hey, billionaires got a bunch of tax cuts in that bill and a bunch of poor people are going to lose their health care so we should do something about it." And this is the proposal they put forward to voters. Okay. Talk me through a little bit more about where this money would go literally. This would be basically to subsidize lower income people's health care or how would it actually get spent. Yeah. I mean, there's actually flexibility in the measure. And so the if it passes the legislature and governor would make those decisions. But the idea is that it would help backfill those deep Medicaid cuts. They're expected to, you know, throw several million people off of the roles here in California. We call it medical here, but that's the Medicaid program. 10% of it would be your mark for things like schools and other state programs. But the bulk of this would really be for both, you know, those health care dollars that folks are going to lose in their premiums. And then also potentially to help keep emergency rooms and clinics open because one of the big fears is that as Medicaid gets cut, there's just not as much money flowing, especially to more rural areas. And you're just going to see these massive closures and really like health care deserts. So it's a one time tax. They say it would raise around $100 billion and that that would essentially give the state a bridge until they hope Democrats get back in power and can kind of reverse those deep cuts. It's kind of a crazy idea that taxing 200 people could pay for health care for not insignificant portion of the state. Well, I mean, I think that speaks to the moment we're in, right? Like the reason we're even having this conversation, Tam is like inequality has just grown so dramatically. I think what you have is, you know, a group of folks here in California, they're looking at this and being like, look, if these guys have grown their wealth, essentially exponentially just in the past five or 10 years, we can take a little off the top and help the poorest people in California. Can you dig into a little bit more, Marisa, on how this would actually work? Because I feel like if there's one thing I know about billionaires is they are pretty good at tax loopholes. So how does the proposition address this idea of actually getting this money? Yeah, I mean, I think first, like, yeah, let's play in a flagpole here. Whatever happens if this passes, we are going to see massive pushback litigation fights. It's not going to be an easy fight for the state to enforce this against your point, some of the most rich and powerful folks in the world. I think this is why, you know, if you talk to Dave Reagan, who's the head of SEIU, UHW, which is this healthcare union that wrote it, he really crafted this in partnership with some kind of more liberal economist at UC Berkeley. And they say, like, we made this in part to avoid some of those pitfalls. So first of all, it's a one time tax. So it's not an ongoing thing. And I think that's part of the political messaging, but also part of the idea that, like, you couldn't move out of state just to avoid this now. We lived here as of January 1st, ostensibly this tax would affect you. And so what they're saying is like, we're avoiding the longer term impacts of like driving businesses out of state because, you know, this is just a one time thing and it's retroactive. And so I think that that retroactivity would be litigated. We've already seen folks like Sergey Brin, co founder of Google, who's poured over $80 million of his own money to fight this. And sometimes he already moved. They saw this coming at the end of last year's, you know, signatures were being gathered and the effort to put on the ballot was ramping up. And he's like, you know what, I've decamped to Reno. That's my main address. You can enforce this against me. I also just love spending $80 million on fighting the thing as opposed to just giving those $80 million. It's part of the tax somehow. I feel like that. It comes out of the wash to some extent, but it's it's the principal miles. Well, it's not though, because think about if this guy's worth 200 billion, he owes 10 billion. Oh, that's fair. So like, I agree with you. I often have that thought during these ballot measure fights in California. Like, wouldn't it just be cheaper to write the tax, you know, Bill? But I do think for them, they see this as like an existential threat. And I think that they also see it as like a slippery slope in the sense that if California does this, what do other states do? This makes a national conversation, you know, even more potent in terms of assessing a national wealth tax. Like, this is something that, you know, a lot of critics of the tax on the democratic side, which we'll get to. But that's one of their things that they say behind closed doors. Like, this union has awoken the sleeping giant of the billionaires. And now they're going to be big political players. I think you could push back that they've already been pretty big political players, but like that is part of the messaging. Yeah, I think they've already been big political players. I think we can, we can safely say that, but you know, there is an element of as goes California, as goes the rest of the nation that California has often led the way with its ballot measures on issues that then get adopted more broadly around the country or certainly by blue states around the country. And I think this is probably why you saw Bernie Sanders for Montsenator, who we all know talks about the millionaires and the billionaires all the time. And that was really bad. We're keeping that in now. Sorry, what did that have to stay in? But he talks about the millionaires and the billionaires all the time. And so he, he came to California to campaign for this because he does see this as if it can pass in California, then this can send a message to the rest of the country. Yeah, I mean, I think that that's not a terrible calculation, right, for someone like Bernie Sanders. I've been kind of wondering the opposite, which is like if it fails here, then what does that do the progressive movement and the kind of tax the rich question. But yeah, I think Bernie Sanders and Dave Reagan and other folks who support this tax say they're willing to have that fight even if they lose it. I mean, they think they can win because there is such dramatic just anger right right now over prices, over inequality, over affordability. But I think that for them, you know, we have led on a lot of especially social policies. We do already have a pretty progressive tax right here. And then I think the other thing that you can kind of like argue on both sides of this is like we are the home of Silicon Valley. Like we have more billionaires than anywhere else because this industry is birthed here has grown up here. Now AI is happening here. And so like, you know, what what folks like who support the tax would say is this state helped you build that wealth. Wouldn't it be great to give a little back and and help the people that essentially were part of that. There is this broader narrative on the right though that California is a high tax state. It's not a good place to do business anymore. Elon Musk, he has moved his business to Texas from California. If Sergei Brenn is talking about being in Reno, there's actually been a bit of an out migration towards Nevada as well. And you know, like that may be more talk than actual massive migration of the tech economy. But I think that is something that those who oppose this are concerned about that. Yeah, I think I think there's two things there. Like I would say the first is a little of a red herring like Elon, you know, taking his Tesla isn't going to Texas. I mean, we still have a lot of Elon's industry here. So I think for, you know, there's the big guys, right. And again, there's only dozens of them. I do think that there has been a bigger kind of argument to be made around is California's progressive tax system. Herding innovation, is it, is it driving people out. And I think in this case, what you're seeing is someone like Governor Gavin Newsom, who's been very bullish about, you know, California exceptionalism and why we, you know, have been able to build these huge tech industries here, saying in this case that he does have concerns that he thinks that this will send a message longer term. And that, you know, even though they often avoid a lot of taxes, they still pay a ton into the tax system relatively, right. So they're worried that if this passes, regardless of, you know, how it's litigated or collected, that the message it sends is bad, that it is going to push billionaires out of the state. And then over time, that's going to hurt not just this, you know, bucket of money they're trying to raise to backfill Medicaid cuts, but it's going to essentially hurt the entire state budget because we will just see like a decline in revenue over time. I do want to ask one more practical question though about how this would actually work because when I think of income tax and how it's actually paid out, it normally comes from paychecks like you get your paycheck and a certain percentage of that goes to the federal government for different services and things like that. But this. tax is actually going to be on net worth, something that I don't think the federal government knows about each and every one of us. So I guess I'm just wondering how this part of it would actually work in practice. Yeah. So essentially my understanding is that you would have to attest it yourself. So like there would be a question on our California tax return to next year that's like are you a billionaire? And if you say yes, I feel like there would be a lot of people who suddenly are only worth $999 million in $90, yeah. Yeah. But you know, obviously like what Dave Reagan points out the head of the union, the road this is like most of these folks have their wealth in the stock market, which is publicly traded and visible. So it's actually relatively easy to see he says it's about 70% of their wealth. So basically you would be asked like, okay, Miles, are you a billionaire? And if you say yes, you would then have to essentially attach a list of your assets. And like, you know, the same way our whole tax system, to some extent is, you know, based on like the honors system, right? And so it would not include most real estate, I will know. But it would include stocks, bonds, artwork, other assets, probably yachts, things like that. So you would have to disclose your yacht miles. I know that would be a difficult thing. But what if it's like parked in the Mediterranean right now? That's kind of where mine is. That's right. Yeah. It's your overall wealth. We're big public radio yacht. Okay. That makes sense. Let's see a quick break and more on some really complicated political dynamics that are playing out around this proposition right after this. And we're back. So Marisa, I want to dig into these political dynamics a little bit more and sort of who is supporting this proposition versus who is against this, specifically among Democrats. Because I think that's where this gets pretty interesting. I imagine the billionaires aren't too thrilled about having to pay a 5% tax. But can you walk us through other folks who have come out against this? Yes, not surprisingly, the billionaires are opposed. But I think more surprisingly is this strange bedfellow coalition against it. So the usual players that you would expect, some of the state's biggest anti-tax groups and business groups all oppose it. But so do folks like Gavin Newsom, our governor, Democrat with eyes on a possible 2028 run. The California Teachers Association, the union that represents teachers here in California, their labor unions, hospitals, the medical association, plan parenthood. It speaks to two things, right? One is the concerns we discussed that the governor's really laid out that he thinks that this would have the effect longer term of really hurting the state budget. And so there's definitely that concern. And for the teachers, about 40% of the state's general fund just goes to education. That's guaranteed it's locked in by the Constitution. This money would be outside of that general fund. It's called a special tax. It would go in a special account. And so I think that there's a lot of labor unions who see this as not beneficial to their members, potentially damaging to the state's larger budget. And then in general, Dave Reagan and SCIU, UHW have just used ballot measures like they've written ballot measures again and again to try to leverage other agreements. So for example, this year we're also voting on a ballot measure that says 90% of all spending at health clinics has to go to essentially patient care, not overhead. And SCIU, UHW special, they had another ballot measure, they had proposed this year that didn't make the ballot that they pulled off that would have capped executive compensation in hospital and health clinic settings. So there's a lot of like ways that he has played that I think a lot of the regular democratic and union players in California don't see as kind of fair game. And there was a lot of very intense negotiations at the end of last year and through the spring between the governor's office and Reagan to try to get this off the ballot. And so we have seen a lot of sort of like personal anger, I would say, on the democratic side at the leaders of this, at the core of the opposition is this concern that this is really going to harm the state instead of help it. And I also just think if you're Gavin Newsom and you wake up in the morning and you see a president in the mirror, you don't want to have to deal with this as part of your legacy as governor, you don't want to have to defend this on a debate stage against a Republican nominee someday. Is that right though? I feel like that's what's kind of interesting about this is because like, don't people generally feel like income inequality or wealth inequality in America is kind of out of control? Like isn't there a version of this work Gavin Newsom could make a different decision and run on something like this as a way that he actually tried to solve some of this stuff? Well, obviously new tax proposals are problematic generally politically, but I do think it kind of raises two interesting ideas at the same time. Yeah, I'm kind of obsessed with this like question because I feel like it is such an interesting calculation for Newsom to make. Like, this is a guy who, you know, 20 years ago led on gay marriage at a time when like, that was a third rail essentially in democratic politics, right? This is a guy who came out and helped champion legalizing marijuana, even though he says he's never touched the stuff like he has been at the vanguard of a lot of these especially social issues. And I think you can say whether you like him or hate him that he's often kind of had a very good sense of where the politics were going before they actually got there. And it just helped him really, you know, become this national figure instead of for this possible run. And so I don't think we know miles to your point. Like, I think his calculation from talking to folks around him and, you know, I've covered him for over 20 years, but, you know, I think some of it is legitimate, like the critiques that we talked about. I think some of it is maybe a little bit more cynical, like do you want to piss off the entire billionaire class as you're gearing up to run nationally, like you probably want their money, right? Or at the very least, don't want their money trained at you exactly, right? And we've seen how crypto and AI money has come in and just like carpet bomb some of these races, right? So like, is that how you want to enter a national campaign? Do some came out when he announced, you know, his opposition to this and was like, I support a national wealth tax, a state-by-state way thing is not the way to do it. Do voters buy that? Like if you're in North Carolina or Georgia next year, are people making that distinction? I don't know. Maybe he can make the case. He's a very gifted communicator, but I do think it's a gamble in some ways. One thing that I was thinking about as we were talking about this issue is this study that I did a story about earlier this year by a pair of progressive researchers who were looking at the disconnect between white college-educated Democratic voters and more working class voters. And one of the areas where there was a really big disconnect was on the popularity of taxing the rich as a policy, and the liberal college graduates cared a lot more about taxing the rich than working class voters, which seems counterintuitive. It does. Basically, those are the voters who have higher, presumably probably have higher net worth or higher incomes, and they're more in favor of taxing the rich than the people who are making less money. Yeah. And, you know, there are all kinds of reasons for this. There's sort of the aspirational aspect of, you know, if somebody can get rich, you know, good for you. I'd like it to be me, too. And some of it is also that it's not just the rich where there's a lack of trust or concern. There's also a lack of trust in the government, like where would this tax go? This is just one data point, but it is this very interesting thing as Democrats are trying to think about how do they win over working class voters? It's a little counterintuitive, but focusing on taxing the billionaires may not be the best way to reach those people. I got to give California voters credit here, like I've been watching the state for twenty years and generally in ballot measures, like they take their job very seriously. It is surprising to me how often you see voters really understanding nuances or when somebody's trying to trick them or whatever. And so I do think that there is this sense in the electorate that like this could, there could be a tail to this, that this could harm us and we don't know. And then I also just think, yeah, like there's so much anxiety right now in general that when you have some of the most popular figures on the state saying this is a bad idea, it just gives people pause, you know. It feels like to your point about voters having a lot to wait through this November. I also want to mention just before we go that there are two other ballot proposals on the ballot this year that would potentially nullify this one, right? Yeah. So the billionaires, as it became clear, this was going to make the ballot put on two other ballot measures. Both of them, like sound really benign, like one of them would essentially say you can't tax retirement accounts. One of them says you can't exempt special taxes from the state spending limit, which is a decades old law that says if revenue grows too quickly, then we get tax refunds as a taxpayer. So they sound really great, but both of them have language in them that if they get more votes than prop 40 and all three pass, it would essentially nullify the billionaire tax. And so I think the most cynical way you could describe it is that these were put on the ballot to kind of trick voters, right? So like, it's an insurance policy. If the billionaire tax passes, but these really pretty benign sounding good government measures past two, you essentially undercut the billionaire tax. Those in recent polls are actually pulling lower than prop 40. But I do think voters are getting that message. I think especially the retirement account one is a really interesting conversation, especially given what you just pointed out, Tam, which is like, and I think we've seen this over decades, which is there is this hesitation to taxing richer people. There is a sense in an American society that we're all about to be that billionaire, you know? And so I think that this is an area where, again, like the proponents of the billionaire tax just have to really rely on voters doing their homework and understanding the nuance here. All right. When Marisa Lagos from Member Station KQED, thank you so much for talking through this with us. Thanks for having me. And that is all for us today. Before we go, just a reminder that new episodes of our show come out every weekday afternoon, usually between four and five p.m. Eastern time, and the best way for you to make sure you get those episodes right when they come out is to follow this podcast on whatever platform you use to listen. Whether that is Apple, whether there's a big plus sign on our show page that you can hit to follow us or on Spotify and the MPR app, where there's also a big button that says "Follow." Please make sure to hit those buttons and make sure you have the latest development for your evening commute, walking the dog, doing the dishes, whatever you do while you listen to us. Jabber on and off. I'm Miles Parks. I cover voting. I'm Tamara Keith. I cover politics. We're listening to the MPR Politics podcast.