California Democrats endorse a one-time tax equal to 5% of billionaire wealth

Proposition 40 could raise tens of billions for health care, but the hardest questions are how California would value private fortunes and what happens after the one-time money is gone.

The California Democratic Party's executive board narrowly endorsed Proposition 40, breaking with Gov. Gavin Newsom and other prominent state Democrats. The November measure would tax people who were California residents on Jan. 1, 2026 and whose worldwide net worth on Dec. 31 is at least $1 billion. It generally charges 5% of total net worth, not merely the amount above $1 billion; the rate phases in between $1 billion and $1.1 billion.

ContextThe initiative text reaches worldwide assets held by a taxpayer and spouse. Public stock is valued at its Dec. 31 market price. Private businesses, partnership interests, trusts, art, collectibles, intellectual property, private financial instruments, receivables and personal property can count too. Directly held real estate and most retirement assets are generally excluded, and the catch-all category gets a combined $5 million exclusion. Private businesses are initially valued using book value plus 7.5 times average book profit, although the taxpayer or Franchise Tax Board can seek a certified appraisal when that formula substantially misses fair market value. Taxpayers can pay over five years with a 7.5% annual charge on the unpaid balance. A separate deferral account can attach the state's 5% claim to illiquid assets until sale or death.