California Democrats Can’t Agree On How To Tax Billionaires

Tuesday is Election Day in America, and in California, people will be voting on a hotly contested measure, a wealth tax for billionaires. If it passes, it would be the first of its kind in the nation. This November, you'll get to vote on a measure that's getting a lot of attention around the country, prompt 40, the California Billionaire Tax Act. Our proposed tax on California Billionaires is rattling Silicon Valley with many threatening to leave the state. Some economists are questioning whether this unprecedented wealth tax is a necessary step for economic equity or a recipe for a mass capital flight. They just become one of the biggest political issues of the year. Lauren Nelson covers California. Did you expect it would become one of the biggest political issues of the year when you first heard about it? No, and maybe we should have, given that it's both really novel and also given how many billionaires made their fortunes in California and still live there. There's a lot of resistance to the proposed tax. And what's surprising about it is that the resistance is not just coming from billionaires. It's also coming from within the Democratic Party, a group that has historically been in favor of higher taxes for the wealthy. I mean, California I think is known for political drama and even so, this one has really been a mess. And we are seeing people and groups that have traditionally been allies, turning against each other. And groups that generally are not on the same side, like billionaires and iron workers and other types of labor groups all fighting for the same cause. It's very unusual. Welcome to the journal, our show about money, business, and power. I'm Ryan Knudsen. It's Monday, November 2nd. Coming up on the show, how the proposed billionaires tax is tearing California Democrats apart. Taxing billionaires is a popular idea on the progressive left. On the left, it's been in the ether for a long time. People who follow Bernie Sanders or know his political career know that taxing the millionaires and the billionaires has been a long time rallying cry of his. They are sick and tired of billionaires paying a lower tax rate than the average of American workers. I would say more recently it's become more of a forefront issue as wealth inequality has continued to skyrocket. About 15% of the wealth in the United States is now controlled by the.1% of the wealthiest households in the country. So that means the average wealth for a household in this group is more than $200 million. And meanwhile, the bottom half of households in this country have an average household wealth of about $63,000. So it is becoming starker and starker. So that's like the backdrop to all of this, right? The story of the proposed wealth tax in California started last year. After Republicans passed Trump's big beautiful bill. The bill included major cuts to Medicaid, the federal health care program for low-income Americans. In California, that will be felt particularly acutely because more than one in three people who live in California rely on Medicaid for their health insurance. And the healthcare system in California consequently also relies a lot on Medicaid to pay its bills, to pay doctors, to run hospitals, all these things. Seeing large looming cuts on the horizon, a prominent California union for healthcare workers known as the SEIU UHW started brainstorming how to cover the funding gap. They started polling different options and talking to people, including a group of economists that has made taxing wealth their, like, primo issue. And they figured out that the most popular option in their polling was also the simplest, which was taxing the wealth of billionaires, like a one-time pop, to backfill these cuts that have come from Washington, DC. The union took that idea and turned it into Proposition 40. They say that they just need a little bit of money for the next couple of years. Well, a lot of money, but they say that really it's an emergency and what they need is a way to backfill these cuts right now. And so a one-time bill will do the trick. They say it will help California bridge the gap and make sure that all those services can stay open, that, you know, healthcare workers don't lose their jobs, that rural hospitals stay open until some kind of a more long-term fix can come from Washington. Prop 40 would be a sea change for how taxes work. Normally, most people are taxed on their income, their salary. But most billionaires don't derive their wealth from their salary. Mark Zuckerberg will and gets paid a dollar a year, for instance. Billionaires get their wealth from the stuff they own, like stocks, bonds, stakes in private companies, intellectual property or art. Prop 40 would go after all of that. It would impose a one-time 5% tax on the global assets of every billionaire living in California. And it would apply retroactively to billionaires who were living in California at the start of 2026, which is about two to 300 people. In total, proponents estimated would raise about $100 billion. Right away, many billionaires came out against the wealth tax. And somewhat surprisingly, so did the state's most powerful Democrat. The governor Gavin Newsom said that he didn't think it was a good idea. And those divisions only deepened in the months that followed. At an event last December, Newsom said he didn't think the wealth tax would gain traction in the state. A wealth tax that vast majority of labor opposes, and almost everybody I know opposes. So it's not something to be panicked about. Soon after those comments, Newsom met with Dave Regan, the president of the health care union that proposed the tax. He invited him to his office suite in Sacramento, beautiful windows, great natural light, looks out over the capital, dome, and all the trees that are planted in the park outside. And they had a brief talk where, according to our reporting, Regan and Newsom agreed that the Medicaid cuts could mean that California would lose as much as $25 billion a year in funding, and that there was no other immediate way to backfill that money. Then we reported that the governor asked Regan to keep the measure off the ballot. Regan said no, and that was the last time that they met in person. Why doesn't Gavin Newsom support it? Well, you know, he, two things first. I think he's never really been a fan of wealth taxes in California. He's been in public office for a long time, so we have a pretty good track record of what he's said and done on that issue, and he's never supported them at the state level. He says this specific tax, he's concerned that it's going to drive the wealthiest residents from the state. In the month since Prop 40 was announced, some billionaires have looked into leaving California. Sarah Gabe Brent, the co-founder of Google, bought a house in Nevada. PayPal co-founder Peter Tiel opened an office in Miami for his investment firm. And after Meta CEO Mark Zuckerberg threatened to leave the state, he reached a deal with Meta's board that would allow him to sell some of his shares to pay the tax without losing any voting control in the company. If enough billionaires leave, it could have a real impact on the state. California already has some of the highest income tax rates in the country, and around 17,500 households are responsible for more than a six of the state's personal income tax revenue. A very small number of people paying a really high amount of money, and losing those people can have a disproportionate effect on roads and schools, and all the other stuff that the state pays for. And his concern is that if we only do it in California, then that's going to hurt California. Right. Newsom, who's discussing a run for president in 2028, says he supports a wealth tax at the federal level, and one of the main criticisms that's been levied against him by Dave Regan and the health care workers and the other people who support the wealth tax is that he has chosen to be against this measure because he wants to build relationships with wealthy donors, who he will need to fund his run for president if he chooses to run. Newsom didn't respond a request for comment, so that's the governor. More surprising opposition to this tax has come from some of California's unions. There's been, I would say, an unusual amount of division in organized labor on this one. Our reporting has shown that, you know, generally the organized labor movement in California tries to choose priorities as a group, and this year, it really split organized labor into two camps, and we don't typically see them kind of dividing up and facing off against each other as much as we have this year. For example, there's division within the two big statewide teachers unions. One opposes the tax, one supports it, and some of their local chapters are split on it. And a union that represents skilled tradesmen opposes it, because it worries that lost state revenue from billionaires would affect jobs. And they're concerned that if the state budget takes a hit from wealthy Californians leaving, there will be less public investment in infrastructure, like major rail lines and convention centers and, you know, things that will directly impact the number of their workers who will get hired to work on these projects. If you're not building as many highways, you don't have as many guys out there building the highway. Another concern among some unions is where the money from the tax would go. 90% of the revenue from this tax would go to health care. And there are a number of unions that are concerned that it basically the money isn't being spread around, so that it wouldn't benefit other public sector workers who don't work in health care. And so what's the point of supporting it? If we're going to tax billionaires, as we'll get for everybody, at least put the money into the general fund, which means that it gets split up and divvied up into the state's budget. Even within the medical community, there's worry the money won't be used in the way proponents help. So this is a concern that's been raised by medical groups, especially trade groups that represent clinics and tens of thousands of doctors across California, who have said there's no guarantee that this money will mean that the amount of spending for health care will grow in California, which is kind of, it's wonky, but that there's not language in the tax that ensures that if all this new money comes in, that the state legislature can't make cuts elsewhere, right? And so then ultimately, if this is a one-time tax, cuts have been made from elsewhere, there could be a fiscal cliff. Five years down the road, we're suddenly this revenue has shut off and the spending has shifted to other areas. And that health care will basically have the same problem that they're having now, right? This is a bandaid for a structural issue. That's what they're arguing. Yeah. One of the people arguing that is Katie Porter, one of the most well-known progressive politicians in the state, former Congresswoman Katie Porter, who is, I mean, a longtime ally of Bernie Sanders and his, of course, a student, a former student and mentee of Elizabeth Warren, who has been a longtime advocate for taxing wealth and finding better ways to tax billionaires. And she's become a vocal advocate against the tax. Porter said that if there's going to be a tax on billionaires, she'd want it to fund other things, too, like child care, free college. I don't just want to take it and keep the current corrupt, broken, busted health care system afloat for a whopping another month or two. And meanwhile, all the billionaires flee to wherever they park their yachts offshore. So yes, to taxing billionaires, but let's not do such a piss-poor job of it. She says that she doesn't think it makes sense that it's not good tax policy. And that if California is going to do something that's monumental, that the state needs to get it right. You sort of got one swing at this, maybe. Yeah. I mean, if you've seen the wire, I always think of that quote from Omar Little, which is that if you come at the king, you best not miss. I mean, one of my other favorite sayings is if you're going to get wet, you might as well swim. If you're going to be a bear, be a grizzly as the other. And that's part of the debate, right? Is that people are saying this is this gigantic new idea that California is debating. And so if we're going to do it, like everything needs to be airtight. And some people feel like it's not. For Democrats, all of this has been a little headspinning. Researchers are getting mixed messages from messengers that normally are trusted. Like for example, how is the governor voting is a very normal question that you might ask yourself? Oh, the governor is opposed to it, but the state Democratic Party is for it. How is Katie Porter voting for it? Well, she's against it, but like Bernie Sanders is for it. Oh, well, how do the unions that I like? How are they feeling? Oh, well, they've all chosen different sets. So like, it is a very kind of scramble line of messaging that people are getting. That was Dave Regan said about all this. He has said that he doesn't see anyone else proposing any solutions. And that to him and his members, this is people who work in clinics and in hospitals, that they are already seeing the effect of the cuts. They are afraid that hospitals will close, that health care will get worse for people, and that he felt the need to act urgently. And that even in that conversation with the governor, he said, you know, that there was no other solution that was offered. And he just felt like someone needed to do something. Meanwhile, billionaires are trying to do something to make sure this tax never happens. That's next. So we've known from the beginning that billionaires are going to be opposed to it. Democrats are having almost infighting. What are the billionaires actually been doing? Mostly the writing checks to pay the tax, to fight the tax. We've seen an almost record amount of spending on this measure, which is maybe not a surprise given that we're talking about people who are among the richest people in the world. Google co-founder Sergei Brenn was one of the big early movers against the measures. He helped seed an organization that has become kind of the beachhead that's fighting it. And he and his operatives have recruited a big network of other donors, many of whom have gotten their wealth through tech, CEOs, founders, venture capitalists, and others who have written, you know, 500,000 to like $10 million checks to help support a gigantic campaign that is blanketing the state, TV, mail, text messages, Instagram influencers, like the whole nine yards, tens of millions of dollars of spending. It's not a billionaire tax, it's in everyone tax. On top of funding a lot of ads, the billionaire back groups have put forward propositions of their own. We have Proposition 40, which is the wealth tax. And then we have two quote unquote countermeasures, Proposition 41 and Proposition 42. Proposition 41 would essentially require any new taxes to follow pre-existing rules on how the money can be used, meaning it couldn't be funneled towards Medicaid. Prop 42 would ban new wealth taxes. It's being branded as the Retirement and Personal Savings Protection Act. And they have really been focusing on the idea that, well, right now it's billionaires, and next it could be you and your 401k or like you and your public pension or you and your annuity or whatever. And it would preclude or take off the table, like future efforts to levy taxes against any kind of property besides real estate. If either or both of these propositions pass, they would effectively cancel out the original wealth tax. It's a very particularly confusing set of possibilities. So like we are facing the very real outcome that the wealth tax could pass and also voters could pass a ban on wealth taxes at the same time. Wow. Yeah. This is rather confusing. It's extremely confusing. I haven't voted yet. I need to fill out my ballot and the idea of reckoning with all these things is really daunting. In a statement, the union that proposed the wealth tax said that the amount of money billionaires are spending is assigned a quote they don't believe they can win a fair fight based on the facts alone. For most of this year, polling show to slight majority of Californians supported the wealth tax, but support has been falling. Last week, a new poll showed the measure was underwater for the first time, meaning that more people are now against it than support it. And so we also know though that it's a top issue for voters. There's 14 initiatives on the ballot this month and the wealth taxes the measure that is the most important to mail voters, college graduates, and households earning more than $100,000 a year. So groups that are really dialed in and paying attention to the civic process in California, it is the most important thing that they're voting on. However, the vote goes on these propositions. Laura says she's preparing to cover an ensuing legal battle. In these midterms, there's so many different issues, you know, from like data centers to the way that, you know, political realignment has been happening in this country. And now we have this that's creating these like strange bedfellows. It is really unusual. I mean, we talked a little bit about the split in organized labor, but like the fact that the state Democratic Party is in favor of the tax, but most of the most prominent Democrats in the state are against it. Those most prominent Democrats are on the same side of this issue as billionaires, many of whom have been kind of punching bags for people. Democrats talk a lot about billionaires and multimillionaires and how we need to make society more equitable for everybody. And they find themselves on the same side of this one, along with healthcare groups. And iron workers and teachers unions and Planned Parenthood clinics, it is just like a real Motley crew of groups that have found themselves aligned. They're not necessarily all working directly together, but they are pulling towards the same goal, which is to say they want to see the tax go down. What does this say about how difficult it may be for a wealth tax like this to get passed anywhere else? I think it shows that even in a really blue state where many voters are progressive or even further left, it's still not like a clean cut issue, and that some people who consider themselves to be progressive or even really truly far left aren't in favor of this one. And that when you come for billionaires, they will be willing to do something about it. The concern among some in Silicon Valley is that California will become known as the kind of place that doesn't welcome innovation and where new companies aren't built. So the question is, whatever is the next open AI or the next anthropic or the next Google, will that company be built in California to begin with? If you are looking at the prospect of creating a company that has a valuation of billions and billions of dollars, do you want to potentially be subject to something like that or would it be better to maybe put down roots elsewhere? And that's kind of unquantifiable, but the very kind of long term threat that's hanging over the head of people who worry about this stuff. That's all for today, Monday, November 2nd. The journal is a co-production of Spotify and the Wall Street Journal, additional reporting in this episode by Paul Kiernan. Thanks for listening. See you tomorrow. [MUSIC]