California voters block future wealth taxes in major defeat for billionaire tax campaign - report

California voters approved a constitutional amendment banning new state taxes on personal assets, including investments, retirement savings, and business holdings, the Associated Press reported Friday.

Proposition 42 secured just over 51% of the vote, compared with nearly 49% opposed, with approximately 96% of ballots counted. The measure had maintained a narrow lead since vote counting began on November 3.

The amendment prohibits California from introducing new taxes on the ownership of personal property, including 401(k) retirement accounts, financial investments, digital assets, intellectual property and business interests. Real estate is excluded from the restrictions.

It also prohibits retroactive state taxes, except in cases of a state-declared emergency. The measure restricts the state's ability to introduce new taxes on accumulated personal wealth, although existing income taxes remain unaffected.

The vote follows the defeat of Proposition 40, a separate ballot initiative that sought to impose a one-time 5% tax on California billionaires. The proposed tax was intended to raise revenue primarily for healthcare, with additional funding for education and food assistance.

Tech billionaires backed campaign against wealth tax

Proposition 42 was introduced as a competing measure designed to prevent Proposition 40 from taking effect. Had voters approved both initiatives, the measure receiving more affirmative votes would generally have prevailed.

Although voters independently rejected Proposition 40, the passage of Proposition 42 creates a constitutional barrier to similar wealth tax proposals in the future.

Building a Better California, a group financed by Google co-founder Sergey Brin, venture capitalists and other technology executives, organized the campaign supporting Proposition 42, according to the AP report.

The measure also received backing from the California Small Business Association, the California Senior Alliance and the California Professional Firefighters organization, according to the Los Angeles Times.

The campaign highlighted concerns among wealthy business owners about the potential taxation of assets that had increased substantially in value without being sold. An October analysis of California's proposed wealth tax examined how Proposition 40 could have affected owners of valuable private companies, including questions involving business domicile, residency, and the valuation of privately held assets.

California generally taxes income and realized capital gains rather than increases in the value of investments that have not been sold. Proposition 42 would prevent the state from creating new taxes based on the ownership of financial assets and other covered personal property.

Supporters argued that the amendment would prevent future lawmakers from extending wealth taxes beyond billionaires to retirement accounts and other financial holdings owned by ordinary residents.

Susan Shelley, vice president of communications at the Howard Jarvis Association, which opposed the proposed billionaire tax, said the vote reflected concerns that retirement savings could become targets for future taxation.

Future wealth tax proposals face new obstacles

The result highlights the distinction between taxing income and taxing accumulated wealth, an issue that has also featured in international debates over tax policy.

The broader question of how governments raise revenue remains a central policy challenge. In Israel, the Tax Authority has been preparing proposals for additional tax revenue, including potential taxes on vacant land and changes to value-added tax collection. Those proposals concern a different tax system and do not involve California's constitutional restrictions.

Proposition 40 supporters have indicated that they may return with another proposed wealth tax in the 2028 election.

However, any future proposal targeting the ownership of personal assets would now need to address the constitutional restrictions established by Proposition 42, potentially requiring voters to repeal or amend those provisions.

The outcome leaves California with a new constitutional limitation on wealth taxation following a campaign that brought together wealthy technology executives, business organizations and other groups opposed to the billionaire tax.