California's Proposition 40, a proposed one-time 5% tax on billionaires, appears headed for defeat in the November midterms, according to election results. The measure had garnered support from the Democratic Socialists of America (DSA), placing the group at odds with California Governor Gavin Newsom, who opposed the proposition.
The DSA's endorsement of Proposition 40 ignited discussions about socialist redistributive aims and potential capital flight, with critics like Richard Stern, an economics scholar with Advancing American Freedom, arguing that such policies misunderstand wealth and could lead to negative economic consequences.
"In their mind, every tax they do is some attempt to get money from people who create wealth and move it to the state," Stern told Fox News Digital.
Proposition 40 aimed to impose a tax on assets such as businesses, securities, art, and collectibles, while exempting certain pensions, real estate, and retirement accounts. To deter billionaires from leaving the state, the measure included a provision to retroactively apply the tax to residents as of January 1, 2026.
The DSA promoted the proposition as a means to fund essential state services, particularly the Medi-Cal program, which provides health insurance to low-income individuals. Their materials suggested the tax could generate up to $100 billion and argued that a 5% tax would only slow the growth of wealth for the state's wealthiest residents, who collectively own $2 trillion.
However, Stern countered that billionaires' wealth is often tied up in assets like businesses and factories, not liquid cash. "The left looks at a billionaire, and they assume that they’re sitting on $10 billion, $100 billion in cash. I hate to break it to them: There’s no cash," Stern said.
Governor Newsom also voiced his opposition to Proposition 40, citing concerns that it was poorly written and would create a competitive disadvantage for California. He noted that the measure was opposed by various groups, including firefighters, teachers, and Planned Parenthood, and that a majority of Californians likely opposed it.
Instead, Newsom backed Proposition 42, a countermeasure designed to prohibit new state taxes on personal property and restrict certain retroactive taxes, which was on track for passage. While opposing the state-level initiative, Newsom suggested that a similar tax might be a different conversation if considered at the federal level.
"Looking at that from a national prism, very different conversation than a state-by-state prism," Newsom stated. "I think the majority of Californians see that distinction even though they absolutely believe that we need a new tax bracket in this country."
Stern warned that a federal tax could face similar challenges, potentially even leading to individuals renouncing U.S. citizenship to avoid it. He characterized the DSA's approach as a socialist effort to seize the "means of production."