This TaxProf Op-Ed on California’s Proposition 40 is by Brian Galle (UC Berkeley), David Gamage (Missouri), and Darien Shanske (UC Davis):

Tax Reform, Health Care Finance, and the Case for Prop 40: California’s Billionaire Wealth Tax

Brian Galle, David Gamage, and Darien Shanske¹

Chocolate and peanut butter; tax reform and health care finance. In California’s upcoming November election, these are two great tastes that go well together.

We know that many TaxProf Blog readers have heard about the billionaire tax. We thought it would be worthwhile to introduce the issues ourselves. California’s Proposition 40 would levy a one-time 5% tax on the net worth of billionaires who were California residents as of January 1, 2026, payable over five years with an interest deferral charge, so roughly equivalent to a 1% annual wealth tax but assessed for only five years. Ninety percent of the revenue is dedicated to health care, the rest to education and food assistance.² Without Prop 40, California must absorb federal cuts that RAND estimates will reduce funding for its Medicaid program by roughly $112 billion through 2034, an amount equivalent to more than $8,000 per California household.³ To help offset that cut, essentially a stupendously regressive tax meant to (partially!) finance stupendously regressive tax cuts, we helped draft and design Prop 40, and write here to refute some claims by opponents.⁴

Tax Reform: Revenue, Mobility and Avoidance

Professor Emmanuel Saez, who worked to design Prop 40 with us, estimated that the tax could raise about $100 billion or about $20 billion per year for five years.⁵ An analysis by Blue Sky Consulting Group agrees and estimates that Prop 40 will raise $116 billion in revenues, approximately $23 billion a year for five years.⁶ Even modeling Prop 40 as if it were a permanent 1 percent annual tax, for purposes of generating a high-end estimate of mobility and tax avoidance, Blue Sky’s upper-bound estimate of lost income and sales tax from future departures is only $640 million a year – less than 3 percent of the annual wealth tax revenues raised.

The effects of Prop 40 on income tax revenues are tiny because, among other reasons, the existing income tax at both the federal and state levels mostly fails to meaningfully reach billionaires. Scholarship by Gamage and Brooks estimates that most ultra-wealthy taxpayers realize less than a quarter of their true investment income as taxable income over their lifetime, so over three-quarters is never subject to personal income tax.⁷ Economists similarly estimate that California’s billionaires pay only about 0.2 percent of their wealth each year in California income tax.⁸ Meanwhile, the ordinary rich who earn salary income face the highest state income tax rates in the country.

There is thus a strong case for using a wealth tax to supplement and fill the gaps in the income tax.⁹ We offered a more comprehensive case for state-level wealth taxes in prior scholarship, including assessing misplaced concerns about mobility.¹⁰ Moreover, for those who favor federal-level reform, history implies that a successful state-level wealth tax reform will likely be needed first, just as early state income taxes, most notably Wisconsin’s in 1911, helped pave the way for the modern federal income tax enacted in 1913.¹¹

California’s billionaires pay relatively little income tax, and yet they have benefitted extraordinarily from California’s booming economy and productive workforce. Indeed, despite all the attention paid to billionaire departures, among those who were California residents on January 1, 2026, and so potentially subject to Prop 40, the number of billionaires has grown from 240 to 260 this year, and their combined wealth has grown from about $2.05 trillion to about $2.44 trillion.¹² A one-time 5 percent tax would thus take less than a third of just this year’s increase in that group’s wealth, for use in keeping health care available for all Californians.

Health Care Finance: The OBBBA’s Cuts and the Magic Wand Response

Last year’s federal budget law, the so-called One Big Beautiful Bill Act (OBBBA), paid for part of its tax cuts by slashing federal health care spending by about $1.1 trillion over ten years. CBO estimates roughly $990 billion of reductions in Medicaid and CHIP and another $213 billion from changes to ACA marketplace subsidies, partly offset by increased spending elsewhere.¹³ In California, the state’s Medicaid/Medi-Cal agency estimates that up to 2 million enrollees could lose coverage and that tens of billions of federal dollars are at risk each year.¹⁴ These cuts will mostly begin impacting California in 2027, with new work-reporting requirements starting in January and six-month eligibility checks in March. The Legislative Analyst’s Office projects that the number of uninsured Californians could double by 2030.¹⁵

Medicaid/Medi-Cal does a great deal of good. Research finds that the ACA’s Medicaid expansion reduced deaths among beneficiaries.¹⁶ An Oregon study found that coverage nearly eliminated catastrophic out-of-pocket spending.¹⁷ Children covered by Medicaid eventually earn more and pay more tax, so the program recoups much of its costs.¹⁸ Medicaid helps keep hospitals open, especially rural hospitals.¹⁹ Medicaid also benefits hospitals and clinics by paying for care they would otherwise provide without compensation.²⁰

Some critics claim Prop 40 is the wrong approach for health care finance. For instance, Katie Porter has called it a measure that “just perpetuates the status quo.”²¹

We would welcome comprehensive health reform,²² but this is not easy to accomplish, especially at the state level. For instance, California’s single-payer bills have repeatedly died in the Legislature, most recently this year when AB 1900 was shelved without a hearing, and have no prospects of passing anytime soon.²³ We are unwilling to see families lose coverage or absorb these cuts in order to facilitate a transition to a new health insurance system, especially one that seems unlikely to arrive any time soon.

We would love to find a magic wand that could accomplish comprehensive health reform. For that matter, we would also love a magic wand that would cure all disease and leave health care finance unnecessary. We might even be willing to withdraw our support for Prop 40 in exchange for such a magic wand.

But there are no magic wands, and no politically viable proposal on the table would address California’s upcoming health care woes at anything close to the same scale. The practical near-term choice for California is between using Prop 40 to offset a substantial share of the federal health care cuts and leaving them largely unoffset. Opponents of Prop 40 offer no comparably scaled alternative that could arrive in time, only magical thinking.

Why One-Time?

We have argued that tax reform (e.g., billionaire wealth taxes) and health care finance (e.g., preserving Medicaid/Medi-Cal) go together synergistically, as two great tastes – but there is a tension.

In the past, we have drafted and supported proposals for an ongoing annual 1% wealth tax for California that would have applied to roughly 15,000 of the state’s wealthiest families.²⁴ As we developed that earlier work, we were told that California’s tax agencies would request years to set up the computer systems and information reporting needed to make an ongoing annual tax on a new base (wealth) work.²⁵ By contrast, a one-time tax can operate more like the federal estate tax, with wealth valued and reported once rather than every year. If it passes, Prop 40 will value each billionaire’s wealth once, as of December 31, 2026. With only about 250 taxpayers, Prop 40 is designed so that FTB can begin collecting revenue in 2027, along with the income tax filing deadline.²⁶

With the OBBBA’s cuts to health care in California expected to have major harmful impact beginning in 2027, a tax solution is needed that can raise sufficient revenues in 2027. Thus, at least for now, Prop 40’s one-time approach is what California needs.

Five years of revenue raising, starting in 2027, will bolster California’s health care finances well into a new presidential administration and Congress. This buys time to see whether the federal government restores health care funding or whether we might get comprehensive health care reform at either the federal or state level.

The Poison Pills of Props 41 and 42

Prop 40 is threatened by two other ballot measures, Propositions 41 and 42, both backed by a committee funded by Google co-founder Sergey Brin, and designed as poison pills intended to undermine Prop 40.²⁷ As we explain elsewhere, the deceptive language of Props 41 and 42 could threaten much more than just Prop 40—including threats to the health plan and hospital taxes that currently help fund Medi-Cal.²⁸ Supporters of Prop 40 must vote against Props 41 and 42, because both include hidden provisions that could keep Prop 40 from taking effect if either gets more “yes” votes than Prop 40. Indeed, even principled opponents of Prop 40 should vote against Props 41 and 42 because they undermine democracy and likely would have unfortunate unforeseen consequences.

Media and Democracy

Finally, consider the motivations of many of the critics of Prop 40; for instance, the LA Times editorial against it.²⁹ According to former LA Times editorials editor Mariel Garza, the paper has had no editorial writers or functioning editorial board since early 2025, after its billionaire owner chased them away. Garza does not know who wrote the editorial against Prop 40, and unlike other California papers that have met with both proponents and opponents of ballot measures to assess the arguments, the LA Times had no communications with Prop 40 proponents. As Garza notes, the billionaires who would pay Prop 40’s tax if it passes include the paper’s owner.³⁰ Prop 40 will not by itself come close to restoring a properly functioning American democracy. But it does offer a potential model for future legislation that might accomplish that goal.

* * *

Related TaxProf Blog coverage:

• Jaros & Rauh: The Net Present Value of the California Billionaire Tax Act (Oct. 20, 2026)
• Economists (71%) and Accountants (85%) Oppose California’s Billionaire Tax; 60% of Tax Lawyers Support It (Oct. 18, 2026)
• Roundup: Changing Coalitions and California’s Billionaire Tax (Oct. 17, 2026)
• Nobel Laureates’ Support Letter for California Billionaire Tax (Sept. 22, 2026)
• California Budget & Policy Center: New Report on Proposed Billionaire Tax (Aug. 11, 2026)
• Newsom Floats Federal Wealth Tax After California Deal Fails (June 29, 2026)
• California’s Billionaire Tax Act Threatens Growth and Fails to Address Structural Deficits (June 24, 2026)
• California Billionaire Tax Qualifies for November Ballot (June 23, 2026)
• WSJ: Rich Californians Are Finding Creative Ways to Get Ahead of the Billionaire Tax (June 22, 2026)
• Saez and Zucman: The Case for California’s Billionaire Wealth Tax (May 27, 2026)
• Some Actual Facts on California’s Billionaire Tax (May 4, 2026)
• Galle, Gamage & Shanske: Correcting the Record: Responding to Some Legal Arguments About the 2026 Billionaire Tax Act (Jan. 9, 2026)

1. Brian Galle is a Professor of Law at UC Berkeley School of Law. David Gamage is the Law School Foundation Distinguished Professor of Tax Law & Policy at the University of Missouri School of Law. Darien Shanske is the Martin Luther King Jr. Professor of Law at UC Davis School of Law. The views expressed here are their own and do not constitute the views of TaxProf Blog or AALS. ↩︎
2. For a fuller explanation, see Brian Galle, David Gamage & Darien Shanske, Proposition 40: The 2026 Billionaire Tax Act Section-by-Section Summary (Sept. 21, 2026). ↩︎
3. Preethi Rao et al., RAND Corp., State-Level Impacts of Key Medicaid Provisions in the One Big Beautiful Bill Act v n.1, vi, 56 tbl. B.1 (RR-A4098-1-v2, rev. June 18, 2026) (estimating reductions of about $112 billion in California’s Medicaid funds over 2025–2034, combining federal funding and state general fund spending). The per-household comparison divides that total by California’s 13,548,091 households to illustrate scale, not to estimate out-of-pocket costs. See U.S. Census Bureau, QuickFacts: California (households, 2020–2024). ↩︎
4. For our responses to other common objections, see Brian Galle, David Gamage & Darien Shanske, California’s Prop 40: Responses to Common Objections, ITEP (Sept. 28, 2026), and David Gamage & Darien Shanske, Proposition 40: A One-Time Tax on Billionaire Wealth, Tax Notes State (Oct. 5, 2026). ↩︎
5. Brian Galle, David Gamage, Emmanuel Saez & Darien Shanske, Expert Report on Proposition 40, the California 2026 Billionaire Tax: Revenue, Economic, and Constitutional Analysis 1 (rev. July 20, 2026) (“The tax is expected to raise about $100 billion over 5 years 2027-2031 (or $20 billion/year) from the 250 wealthiest Californian taxpayers.”); see also Jasper Boll, Emmanuel Saez & Gabriel Zucman, California Billionaires: Wealth, Taxes, and Wealth Tax Revenue Estimates (Nat’l Bureau of Econ. Rsch., Working Paper No. 35218, May 2026, rev. Aug. 2026). A real-time tracker that accompanies the Boll, Saez & Zucman paper puts estimated revenue at about $110 billion as of October 8, 2026. California Billionaire Wealth Tracker (last visited Oct. 9, 2026). ↩︎
6. James Paci, Shawn Blosser & Matthew Newman, Blue Sky Consulting Grp., Economic and Fiscal Impacts of the Billionaire Tax Act 2–4, 9–14 (Sept. 14, 2026),  (also available here). ↩︎
7. David Gamage & John R. Brooks, Tax Now or Tax Never: Political Optionality and the Case for Current-Assessment Tax Reform, 100 N.C. L. Rev. 487, 501–02 (2022). We are aware of recent work by Edward Fox and Zachary Liscow that reaches similar conclusions, though we believe that work is not yet accessible by the wider public. ↩︎
8. Jasper Boll, Emmanuel Saez & Gabriel Zucman, California Billionaires: Wealth, Taxes, and Wealth Tax Revenue Estimates (Nat’l Bureau of Econ. Rsch., Working Paper No. 35218, May 2026, rev. Aug. 2026) (abstract) (“California billionaires pay about 0.2% of their wealth each year in California income tax ($3.2 billion/year)”). ↩︎
9. See David Gamage, The Case for Taxing (All of) Labor Income, Consumption, Capital Income, and Wealth, 68 Tax L. Rev. 355 (2015). ↩︎
10. Brian Galle, David Gamage & Darien Shanske, Money Moves: Taxing the Wealthy at the State Level, 113 Calif. L. Rev. 635, 639 (2025). ↩︎
11. Id. at 695–96; David Gamage & Goldburn P. Maynard Jr., Confronting the Tax-and-Oligarchy Catch-22, U. Ill. L. Rev. (forthcoming). ↩︎
12. California Billionaire Wealth Tracker (last visited Oct. 9, 2026) (daily data for billionaires who were California residents as of January 1, 2026, showing 240 billionaires with combined wealth of $2,054.8 billion on January 1, 2026, and 260 with $2,442.2 billion on October 8, 2026); see also Boll, Saez & Zucman, supra note 8. ↩︎
13. Pub. L. No. 119-21, 139 Stat. 72 (2025); Cong. Rsch. Serv., R48633, Health Provisions in P.L. 119-21, the FY2025 Reconciliation Law (Aug. 18, 2025) (summarizing CBO estimates that the law’s health provisions reduce federal outlays by $1.1 trillion over FY2025–2034, including $989.7 billion from Medicaid and CHIP and $213.0 billion from private health insurance provisions, partly offset by increased spending elsewhere). ↩︎
14. Cal. Dep’t of Health Care Servs., Enacted H.R. 1 Reconciliation Legislation: Medi-Cal Impact Update (Jan. 2026); Cal. Dep’t of Health Care Servs., Tracking Federal Impact: Medi-Cal Eligibility (last visited Oct. 9, 2026); Legis. Analyst’s Off., Key Impacts of H.R. 1 on Medi-Cal and CalFresh (Feb. 11, 2026); Legis. Analyst’s Off., The 2026-27 Budget: Medi-Cal Analysis (Mar. 2, 2026). ↩︎
15. Legis. Analyst’s Off., How Will the Changing Landscape Affect California’s Health Care System? (May 4, 2026). ↩︎
16. Sarah Miller, Norman Johnson & Laura R. Wherry, Medicaid and Mortality: New Evidence from Linked Survey and Administrative Data, 136 Q.J. Econ. 1783 (2021). ↩︎
17. Katherine Baicker et al., The Oregon Experiment — Effects of Medicaid on Clinical Outcomes, 368 New Eng. J. Med. 1713 (2013). ↩︎
18. David W. Brown, Amanda E. Kowalski & Ithai Z. Lurie, Long-Term Impacts of Childhood Medicaid Expansions on Outcomes in Adulthood, 87 Rev. Econ. Stud. 792 (2020); Nathaniel Hendren & Ben Sprung-Keyser, A Unified Welfare Analysis of Government Policies, 135 Q.J. Econ. 1209 (2020). ↩︎
19. Richard C. Lindrooth, Marcelo C. Perraillon, Rose Y. Hardy & Gregory J. Tung, Understanding the Relationship Between Medicaid Expansions and Hospital Closures, 37 Health Affs. 111 (2018). ↩︎
20. Amy Finkelstein, Nathaniel Hendren & Erzo F.P. Luttmer, The Value of Medicaid: Interpreting Results from the Oregon Health Insurance Experiment, 127 J. Pol. Econ. 2836 (2019). ↩︎
21. Katie Porter, On Taxing Billionaires — and Why the “How” Matters, Substack (Sept. 23, 2026) (quotations); see also Katie Porter, Prop 40 Won’t Help Fix Our Broken Healthcare System, S.F. Chron. (Sept. 2026) (published in print Sept. 21, 2026, as Prop 40 Won’t Help Fix Healthcare). ↩︎
22. See, e.g., David Gamage & James G. Kahn, From Premiums to Taxes: Financing Strategies for Single-Payer Health Care, 40 J.L. & Health (forthcoming). ↩︎
23. See 29 U.S.C. § 1144(a); KFF, 2025 Employer Health Benefits Survey (2025) (“Sixty-seven percent of covered workers … are enrolled in plans that are self-funded.”); Alexei Koseff, Why Single Payer Died in the California Legislature, Again, CalMatters (Feb. 1, 2022); Dan Walters, Gavin Newsom Slow-Rolled Single-Payer Healthcare, Leaving It to a Successor, CalMatters (May 2026) (reporting that A.B. 1900 was shelved without a hearing). ↩︎
24. A.C.A. 8 & A.B. 310, 2021–2022 Reg. Sess. (Cal. 2021); Brian Galle, David Gamage, Emmanuel Saez & Darien Shanske, The California Tax on Extreme Wealth (ACA 8 & AB 310): Revenue, Economic, and Constitutional Analysis (Mar. 2021) (describing a 1 percent annual tax on net worth above $50 million, with an additional 0.5 percent above $1 billion, and estimating that about 15,000 California families would be liable); Darien Shanske, David Gamage & Emmanuel Saez, Op-Ed, California Should Pass a Small Tax on Big Wealth, L.A. Times (Apr. 22, 2021). See also A.B. 2088, 2019–2020 Reg. Sess. (Cal. 2020) (proposing a 0.4 percent annual tax). ↩︎
25. See, e.g., Cal. Franchise Tax Bd., Analysis of A.B. 259 14 (as introduced Jan. 19, 2023) (stating that “FTB would require significant lead time to ‘stand up’” an annual wealth tax and suggesting “at least approximately 3-4 years” between voter approval and the tax’s operative date). FTB raised the same lead-time concern about the 2021 bills. ↩︎
26. Galle, Gamage, Saez & Shanske, supra note 5, at 1. ↩︎
27. McClatchy Media’s Cal. Editorial Bd., California Voters Should Know What Proposition 41 Is About. Here Is the Truth, Sacramento Bee (Sept. 29, 2026); Cal. Sec’y of State, Official Voter Information Guide, Prop. 41, Analysis by the Legislative Analyst (2026); id., Prop. 42, Analysis by the Legislative Analyst. ↩︎
28. Brian Galle, David Gamage & Darien Shanske, Analysis of the Impacts of Propositions 41 and 42 on California Public Finance (Sept. 9, 2026). ↩︎
29. Editorial, Vote No on Prop. 40. It Ignores Education, Housing and Safety, L.A. Times (Sept. 6, 2026). ↩︎
30. Mariel Garza, The L.A. Times’ Undead ‘Editorial Board’ Rises to Go After Prop. 40, Golden State (Sept. 9, 2026); see also Brian Stelter & Liam Reilly, Los Angeles Times Editor Mariel Garza Resigns After Newspaper Owner Patrick Soon-Shiong Blocked Plans to Endorse Harris, CNN (Oct. 23, 2024). ↩︎