California's proposed billionaire tax: How does it add up?

When California voters head to the polls next month, they'll be asked whether to adopt a new proposal that calls for billionaires to be taxed like never before. Jo Ling Kent shares what Proposition 40 is all about: 

"There's never been a proposal like this anywhere in the world, so it's a novel idea," said healthcare workers union leader Dave Regan. "We are facing an emergency."

An emergency that began, according to Regan, with President Trump's so-called "One Big Beautiful Bill," which includes cuts targeting federal funds to Medicaid over the next few years.

"What we're trying to do is restore $100 billion worth of health care cuts," Regan said. "Three-and-a-half million people lose health insurance. Hospitals, clinics, and emergency rooms will close." They could also cost jobs in Regan's own union, SEIU United Healthcare Workers West.

So, to bridge the gap, Regan and the union led a petition drive to put on the November ballot a one-time, 5% state tax on the net worth of California's 200 or so billionaires, known as Proposition 40.

How confident is Regan that it will pass? "Pretty confident," he replied.

Regan's tactics are controversial. His behavior? Under scrutiny. But if the wealth tax passes, he expects the state will collect $100 billion over five years, with 90% specifically earmarked for healthcare.

"We're not trying to pretend that it's a permanent solution," Regan said, "but a five-year solution is better than no solution. And that gives the state of California an opportunity to figure out what's the right permanent solution."

Asked if a five-year tax is a solution, Regan replied, "Absolutely. Ask the three-and-a-half million people who are going to lose healthcare coverage."

Competing Propositions

Since the wealth tax was proposed, some billionaires have left California, including venture capitalist Peter Thiel, and Google co-founders Larry Page and Sergey Brin. Brin is spending more than $100 million to oppose the measure.

And California being California, there are two other opposition-backed proposals on the ballot, Propositions 41 and 42. If either one receives more votes than Prop 40, that effectively nullifies the wealth tax.

And the billionaires have some strange bedfellows: several other major unions and big-name Democrats agree with them on voting no, including California Governor Gavin Newsom (who calls Prop 40 "a flawed initiative"), and former Democratic Congresswoman Katie Porter.

"I generally, as a progressive, have fought to make sure that the ultra-wealthy pay more," Porter said. "But this tax doesn't do that correctly, causing these people to pick up and to leave. We want billionaires to create jobs here, to start companies here. …

"You don't get a second bite at tax policy," she continued. "A tax that you pass has enduring consequences. When somebody leaves California, we can no longer tax them. That is a permanent problem. It is much harder to get tax base back than it is to grow it in the first place."

Here's where taxes get complicated: billionaires can pay a lot in income, property and capital gains taxes. But most of their wealth is typically growing in stocks, which aren't taxed until they sell.

"It's a system in which essentially the richest Americans have been written out of the tax system, much like the aristocracy of pre-revolutionary France," said Ray Madoff, a professor at Boston College Law. "People who have enough money to live on their investments and inheritances legally don't have to pay any taxes."

Madoff says Prop 40 spotlights a "deeply broken" tax system, and believes it can be beneficial. "My feelings about Prop 40 are that meaningful change has to happen at the federal level," she said. "And I think that to the extent Prop 40 creates an incentive for meaningful change to take effect on the federal level, then I'd say it would be helpful. On its own, it obviously can't do anything; it's just patching a temporary hole, right? But I think that there is a certain amount of symbolic value of Prop 40."

"California is America's coming attraction"

As for how this turns out, the polls are tightening, with voters now more divided. A "Yes" voter told us, "To me, it's bigger than Prop 40. It's a fight back against the Trump administration."

A "No" voter said, "We really are concerned about people leaving the state."

No billionaires contacted by "Sunday Morning" wanted to talk to us about Prop 40 … except for one. "I don't mind paying taxes; the more you make, the more taxes you pay, so I'm okay with that," said Jensen Huang, the founder and CEO of the American chipmaker Nvidia, headquartered in Silicon Valley. "I don't like tax dollars wasted. But I also support all that this country represents."

Huang's first job was as a dishwasher at Denny's. Today, Forbes lists his net worth at about $200 billion, making him the seventh richest person in the world.

"I am the ultimate American dream," Huang said. "If not for this country, the education, the ability to create a new company, pursue your dreams, I wouldn't have met all the people that made Nvidia possible. I love this country in every possible way. And it's not perfect, but it's incredible."

Even if you end up paying perhaps $8 billion over five years? "The fact that I can afford to pay $8 billion in taxes over five years is a privilege," Huang replied. "I'm not afraid of paying taxes. I'm just afraid of being poor."

Whether you're poor or rich, for or against the billionaire tax, its architect, Dave Regan, is already looking beyond November – and beyond California. "Other states around the country are going to start looking to follow California's lead, just like it's happened so many times in the past," he said. "California is America's coming attraction, and this is coming to a state near you after we pass it on November 3."

     
Story produced by Dustin Stephens. Editor: Emanuele Secci.