Silicon Valley voters to weigh ‘billionaire tax’ ballot measure

California Proposition 40, also known as the billionaire tax, is one of the more complicated ballot measures put before voters this November because its fate depends on two other ballot measures.

Proposition 40 — a one-time 5% tax to be imposed on roughly 200 state residents whose net worth exceeded $1 billion at the start of this year — needs to receive more votes than two countermeasures, Proposition 41 or 42,  to be enacted. If it passes, projected funding would be about $100 billion over five years, mostly to support healthcare, with some reserved for food assistance and education. But if either Propositions 41 or 42 garner more votes, the billionaire tax will be nullified.

California receives a significant portion of its revenue from personal income tax, and Proposition 41 wants to cap how much of those dollars can be used for state and local spending. The last of the three, Proposition 42 would prohibit taxes on retirement holdings, indivually-owned assests and personal savings retroactive to Jan. 1.

Russell Hancock, president and CEO of Joint Venture Silicon Valley, said the region’s wealth gaps are staggering — the largest on the planet.

“In Silicon Valley, the top 10% of households by income are holding 75% of the wealth,” he told San José Spotlight. “The bottom half of all households by income are holding less than 2% of the wealth. This is a relatively new development for the Valley. In the 90s, our region was filled with people living in the middle ranges with only a few outliers. By 2010, we had become profoundly bifurcated, as if we are two valleys.”

Bill James, chair of the Santa Clara County Democratic Party, said Proposition 40 is complicated by design. The opponents of the billionaire tax have come up with these other measures that try to superficially sound reasonable, so that either one of them might take Proposition 40 out, he said. Voters should vote “Yes” on Proposition 40 and “No” on 41 and 42, he added. 

“Prop. 42’s language is cynical because they’re trying to make people feel like their 401(k)s are going to be taxed by Prop. 40, which isn’t going to happen unless you have billions of dollars,” he told San José Spotlight. “It’s cynical and almost borderline deceptive and certainly misleading to make people feel like these kinds of taxes are going to apply to them.”

James said if either Proposition 41 or 42 passes, the language prohibits a similar wealth tax like Proposition 40 in the future. He said these propositions are “trying to lock the door on that.”

He said that although some state party members had objections to Proposition 40, it met the threshold for endorsement because people felt something had to be done in response to President Donald Trump’s “big beautiful bill” that extended tax cuts to favor the wealthy.

“It’s not good for a democracy,” James said. “A wealth tax like this, that is actually short term, is a good way to … rectify this disparity.”

The tax measure is sponsored by Service Employees International Union-United Healthcare Workers West, and supported by Sen. Bernie Sanders, Teamsters California, AFSCME California and the California Democratic Party.

Opponents of the tax measure said if it passes, it could motivate billionaires to leave California, resulting in less state tax revenue. Those opposing Proposition 40 include Silicon Valley businesses, health and labor organizations such as California Business Roundtable, California Medical Association, California Teachers Association, Planned Parenthood, California Professional Firefighters, State Building and Construction Trades, Crypto executive Chris Larsen and venture capitalist Ron Conway.

Mark Hinkle, president of the Silicon Valley Taxpayers Association, said Proposition 40 being touted as a one-time tax is “a big lie.” He doesn’t believe it would bring huge revenue to the state, as billionaires would be motivated to go elsewhere.

“When in the history of taxation has there ever been a ‘one-time’ tax?” he told San José Spotlight. “Anyway you look at Prop. 40, it’s bad policy that if it passes in November, will be repealed later.”

San Jose State University Economics Professor Matthew Holian said if Proposition 40 passes, he is concerned tax revenue could fall. It could be counterproductive, he said, and lead to future ongoing losses. He said the divide between the wealthy and those struggling is incredibly stark in Silicon Valley.

“Given that, you can understand why someone would support a one-time tax on billionaires,” he told San José Spotlight. “But changing the tax laws can cause a host of unforeseen reactions. Enacting the tax could actually be counterproductive if it results in less income tax revenue when billionaires ‘vote with their feet’ by moving to another state.”

Dave Johnson, chair of the Silicon Valley Republican Party, said billionaires already pay taxes, as do their employees. He said the common-sense approach is for the state to lower all taxes and reduce regulations.

“(This) stimulates growth and fosters new small businesses, which are the stalwart of any functional economy,” he told San José Spotlight. “When the billionaires and their corporations leave, jobs leave and then small businesses. It creates a downward spiral to economic death, followed by more taxes.”

Contact Lorraine Gabbert at [email protected].