The spreadsheet makes the rounds among California wealth managers with urgency and a touch of gallows humor. One column lists clients who have already filed change-of-residence paperwork for Nevada, Texas or Florida. Another lists the holdouts, most of them tech founders, still weighing whether to follow. What is concentrating minds is the November election, when the state will vote on Proposition 40, a ballot measure that would impose a one-time 5% wealth tax on residents whose net worth exceeds $1 billion.
The measure, pushed by progressive advocacy groups, would direct the proceeds to health care, education and other public programs. Backers argue that a state with the country’s largest concentration of billionaires can afford to tax them once, at a moment when public services face persistent budget pressure. Opponents call the levy confiscatory and warn that it will accelerate an exodus of founders and investors already well under way.
The opposition is being financed, in large part, by the people the tax would hit. Sergey Brin, the Google co-founder and one of the state’s richest residents, has poured millions into a coalition of business groups campaigning against the measure, according to people familiar with the effort. The coalition has also floated a rival, narrower proposal designed to draw votes away from Proposition 40 and blunt its effect should the tax pass anyway, a hedging tactic that has become familiar in California’s initiative wars.
The fight has exposed divisions inside the Democratic Party that dominates state government. Some elected officials and labor groups back the tax, saying the state’s wealthiest residents built their fortunes on California’s infrastructure, universities and talent pool. Others, including moderates who represent districts thick with tech money, fear the measure will push more companies and founders out of state and shrink the tax base that funds schools and roads.
Behind the campaign lies a longer-running movement of people and capital out of California. The state’s top marginal income tax rate of 13.3% is among the highest in the country, and a decade of rising taxes, housing costs and homelessness has driven a steady stream of founders and investors to Austin, Miami and the suburbs of Reno. For years that flow was a slow leak. Tax lawyers say the prospect of a levy on net worth has turned it into something closer to a decision point.
Tax lawyers who advise wealthy clients say the exit is not as simple as buying a second home in Nevada. California’s Franchise Tax Board examines a web of factors when determining tax residency: where a person’s children attend school, where their doctors practice, where their businesses are headquartered, how many days they spend in the state and how they file their federal returns. A house in Reno, lawyers said, does little on its own to break the tie. The state has won a string of cases against former residents who claimed to have left, and its auditors have grown more aggressive about tracking flight patterns and office attendance.
The mechanics of the levy have added to the controversy. The measure would require taxpayers to calculate their net worth each year and pay a single 5% charge on the portion above the $1 billion threshold. For founders whose wealth sits in private companies with no public price, that means valuing their stakes, a process that can swing wildly with every funding round. Tax lawyers said the assessment rules could produce years of litigation over what a startup is worth and when the tax is due.
The ballot fight arrives as wealth taxes gain currency elsewhere. Washington state has levied a capital-gains tax on high earners since 2022, and Massachusetts voters approved a surtax on income above $1 million the same year. Oregon has debated taxing corporate gross receipts. None has gone as far as a tax on net worth, which is why tax experts across the country are watching Sacramento.
Analysts said the outcome could set a template for other states and, just as importantly, for the federal debate over taxing the rich. If Proposition 40 passes, it would be the first tax in the United States applied directly to net worth rather than income, and tax experts expect a wave of legal challenges, starting with arguments that the levy amounts to a taking and that its assessment rules violate the requirement of uniform taxation.
For now, the state’s wealth managers are doing what they do best: planning for both outcomes. Some clients have already moved. Others are waiting to see which way the vote breaks before deciding whether their future, and their tax address, belongs in California. The result in November will tell the rest of the country how far the wealthiest Americans will go to avoid a tax aimed squarely at them, and how far a state will go to keep them.
