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Wealth Tax Verdict: Case Closed Or Opening Salvo?
Charles Paikert
10 November 2026
Wealthy taxpayers in the US can breathe easier after voters rejected Proposition 40, the “California Billionaire’s Tax,” which would have imposed a “wealth tax” on assets instead of income – or can they? New Washington State tax set for court battle
While attempting to tax assets will undoubtedly be more difficult going forward, higher taxes on income, especially higher incomes, remain squarely in the crosshairs of politicians and voters. Also being scrutinized: real estate, sales and capital gains on inheritance.
California voters passed a ballot proposition that made permanent the state’s current income tax rates for the wealthiest households. Washington State voters rejected an initiative that would have repealed a new tax on millionaires and prohibited future state and local taxes on income. And an initiative in Colorado was approved which will replace the state’s flat personal and corporate income tax rates with a graduated structure that raises taxes on the highest incomes.
The sweeping victories of Democrats across the country in last week’s midterm elections will bring no comfort to those looking for tax relief. On a national television interview Sunday, progressive leader Senator Bernie Sanders, an enthusiastic supporter of Proposition 40, declared there needed to be a “tax on the billionaire class” in the next session of Congress.
Tax measure defeat “derisked California for family offices”
The California Billionaire’s Tax, which would have imposed a one-time, five per cent tax on the wealth, including assets, of state residents worth more than $1.1 billion, was by far the most closely watched, and bitterly contested, proposed tax legislation of the midterm elections.
A coalition of billionaires led by Google co-founder Sergey Brin funneled around $334 million into Building a Better California, a nonprofit dedicated to defeating the tax, which outspent supporters of the tax by a 10 to one margin. The group’s stated goal was to rout Proposition 40 and “chill wealth-tax efforts nationally.” The final vote was decisive but not resounding: 52.8 per cent against the tax measure and 47.2 per cent in favor.
Opponents of the wealth tax scored another win in the form of Proposition 42, which prohibits retroactive state taxes as well as new taxes on ownership of assets such as investment accounts, personal property and business interests, which are currently only taxed when sold or generate income.
The defeat of Proposition 40 and passage of Prop 42 “avoided a cascade of people leaving the state” and “derisked California for family offices and very wealthy people,” said Chris Mays, family office leader at accounting and consulting firm Armanino.
“Not going in the right direction”
The election results “put out the fire for the time being, but California is not going in the right direction,” said Yoni Fix, state and local income leader at Armanino. Many younger entrepreneurs are turned off by the state’s high taxes and attempts to target wealthy business owners and are leaving for more tax-friendly states like Florida, Texas and Tennessee, which has no income tax and just passed a constitutional amendment permanently barring any statewide property tax through “ordinary legislation.”
California’s Proposition 3 maintained high tax rates on the state’s stop three brackets starting at $371,000 for single filers and $743,000 for couples. Three years ago, the city of Los Angeles passed a “Mansion Tax” imposing an additional transfer tax of 4 per cent for sales of properties valued at over $5.4 million and 5.5 per cent for sales of properties valued at over $10.9 million.
In addition, the state taxes long-term capital gains at the same rate as income , making California “less attractive” to wealthy business owners and contributing to migration to other states, according to John Clausen, tax partner in the state and local Tax Group of EisnerAmper.
Wealth exodus argument “a red herring”
Concerns about wealthy residents leaving the state because of high taxes are overblown, said Scott Ellis, a California-based member of the pro-tax Patriotic Millionaires and founder and CEO of MasteryTrack. “The whole argument is a red herring,” Ellis said. “It’s a distraction. One of the benefits of being rich is that you can live wherever you want. I live in Silicon Valley because it’s the most beautiful place I’ve ever been. People said Silicon Valley was going to disappear 20 years ago and guess what? Silicon Valley’s still here and doing just fine.”
Ellis and other pro-tax supporters cite studies like one recently conducted at Cornell University by Cristobal Young on the impact of high taxes on wealthy residents in New Jersey and California that found minimal out-migration as a result.
In Washington State, a 9.9 per cent “Millionaire’s Tax” on income above $1 million, scheduled to take effect in 2028, and impacting just one per cent of the state’s households, will stay in place. Voters rejected the state’s current system of regressive taxation, which relies heavily on sales and excise taxes, said Paul Lawrence, a Seattle-based attorney who worked with Democrats against repealing the tax.
However, the millionaire’s tax will have a day in court early next year before becoming law. Opponents argue that it is illegal under a 1933 Washington Supreme Court ruling that income counts as property. But supporters have a “good case,” arguing that the 1933 case was wrongly decided and that relying on regressive taxes causes harm, Lawrence said.
Future initiatives
As a result of the Billionaire’s Tax’s defeat in California, future tax initiatives are likely to focus more on incomes and sales tax for software and services, according to Mays. “It makes more sense to go after a broader base than zero in on a smaller subset,” he said.
One of the justifications for a wealth tax is that some very wealthy people can meet their spending needs by borrowing against their assets and avoid being taxed on income. That strategy “may come under scrutiny,” said Clausen. “Nothing would surprise me in terms of new strategies for collecting revenue.”
California proposal “a good first step”
Despite its defeat, the fact that voters had a chance to consider Proposition 40 at all is a good first step for enacting a future wealth tax, according to supporters. “It’s a big deal to be on the ballot in the first place,” Ellis said. “It gave the issue a much higher profile and a better chance of being discussed.”
A new wealth tax on either the state or federal level would have to clear considerable political and legal hurdles, Lawrence said. But economic pressure in the form of budget deficits and the need for revenue, especially in states where a balanced budget is mandated, will ensure that wealth tax proposals won’t go away. Popular discontent with “large disparities in wealth” is also likely to come into play, Lawence added.
“People are gradually getting more accustomed to thinking about wealth and taxing wealth,” Ellis said. “I think all of that will lay the groundwork for eventually society saying, ‘Wait, we’ve got to do something about this. This is not OK.’”
“Working to pass a national wealth tax”
The Patriotic Millionaires, whose slogan is “proud to pay more,” will assess whether to support another Billionaires Wealth Tax in California, “when the dust settles and people are faced with the fallout from this defeat, whether it be a $100 billion state deficit or millions of Californians denied access to medical care,” said Alan Davis, an advisory board member of the organization.
Noting that “taxing billionaires was prominent among many winning campaigns” in the midterm elections, Davis said The Patriotic Millionaires “will be working to pass a national wealth tax…which is the only way to raise revenue that doesn't hurt the middle and working-class.”
In the current Republican-led Congress, Democrats introduced the “Ultra-Millionaire Tax Act of 2026” which would impose a federal wealth tax of 2 per cent annually on the net worth of households and trusts over $50 million, plus an additional 1 per cent surtax on net worth over $1 billion.
Asked if they planned to introduce new wealth tax legislation next year when Democrats will control both the House of Representatives and the Senate, Senators Elizabeth Warren and Bernice Sanders did not respond.