By Ann Saphir and Peter Henderson
SAN FRANCISCO, Nov 4 (Reuters) – A wealth tax that progressives including US Senator Bernie Sanders had championed as an antidote for economic inequality and a potential model for the rest of the country looked headed to defeat in California, though officials were still counting votes and no major outlet had yet called the outcome.
Failure of the proposed billionaire tax measure would represent a blow to the left wing of the Democratic Party, even as Democrats swept Republicans nationally on election day in a rebuke of President Donald Trump and his policies. The state’s own Democratic governor, 2028 presidential hopeful Gavin Newsom, had opposed the measure, which was trailing despite voter rolls that favor Democrats over Republicans by a nearly two-to-one margin.
The division among party leadership muddied the message that the tax was a Democratic answer to Republican tax cuts and income inequality, and initial support in polls had diminished ahead of the vote.
By Wednesday morning, 55.6% of counted ballots statewide opposed the measure, with 60% of the estimated vote counted, AP reported.
The measure was drawing a razor-thin majority of counted ballots in Los Angeles County, California’s largest, but was down by double-digit margins in each of the next six largest counties, county voter registrar tallies showed.
Even as prospects for the nation’s first and so far only statewide billionaire wealth tax proposal appeared to fade, incoming Senate Finance Committee Chairman Ron Wyden signaled taxing the ultrawealthy is still a central goal for the party as a whole.
“The committee will redouble its efforts to ensure billionaires pay their fair share and hold tax cheats accountable,” he said in a press release outlining the panel’s priorities.
Proposition 40 was designed as a one-time, 5% levy on the assets of California’s estimated 250 billionaires. Most of the estimated $100 billion proponents projected it would raise was to be earmarked for healthcare programs that stand to lose billions of dollars in federal funding as part of last year’s tax cut package, which passed with Republican-only support in the US Senate.
On Tuesday, voters handed control of both the US House and the Senate to Democrats, who have made reversing those cuts a priority, though they do not have the numbers to overcome a presidential veto.
Opponents argued the tax would drive the ultrawealthy from the state, taking their income-tax payments and job-producing enterprises with them, and discourage entrepreneurs from building their startups in California in the first place.
An onslaught of negative ads on airwaves and glossy mailers in the weeks leading up to the November 3 vote also framed it as a gateway to more aggressive taxation for all Californians. The arguments, which Prop 40 supporters said were unfounded scare tactics, may have resonated at a time when the pinch of higher gas prices and affordability concerns have put a broad swathe of the country in a sour economic mood.
Google co-founder Sergey Brin and at least 11 other billionaires contributed a collective $269 million to a political action committee called Building a Better California, which in turn poured more than $300 million into campaigns opposing Prop 40 and supporting two other initiatives that contain language that would invalidate the billionaire tax if either passes with more votes, state campaign finance filings show.
One of those competing measures, known as Proposition 42, had won 4.1 million votes by Wednesday morning, about 54% of ballots counted and far more than the 3.4 million ‘yes’ votes tallied for the billionaire tax.
Detractors of the billionaire tax expressed relief.
“This is and will remain a progressive state. My hope is that going forward it can be a smart progressive state,” University of California, Berkeley economics professor Enrico Moretti said on Wednesday. “If the NO prevails, it is evidence in that direction.”
Drawing conclusions from the findings of past studies of wealth tax effects, Moretti said that subjecting the ultrawealthy to a new tax would sap the state of jobs and lead to a reduction in overall revenue for the state.
California voters separately approved a different measure, Proposition 3, that makes higher income tax rates permanent for the state’s top earners, according to an AP call. Analysts said the result showed Californians still want the wealthy to pay more.
“A solid majority of Californians feel that there’s a growing gap between the wealthy and the poor in the state, and they’re concerned about income inequality,” said Mark Baldassare, survey director at the Public Policy Institute of California. He added that Californians supported the idea of taxing the wealthy, but believed that the billionaires tax could have unintended consequences.
Progressives including Sanders and US Senator Elizabeth Warren, a Massachusetts Democrat, have argued that forcing the richest to pay more in taxes will bolster living standards for the poor and the middle class, and curb the rising political clout of the ultrawealthy.
A number of billionaires, including Nvidia CEO Jensen Huang, a Silicon Valley resident, have also expressed support for such measures.
“Prop 40 has attracted enormous attention in the state, in the nation, and around the world because it symbolizes the fight between democracy and oligarchy,” said UC Berkeley economics professor Emmanuel Saez, one of the proposal’s architects, on the eve of the vote.
“As long as democracy has life in it, the fight to curb the growing power and influence of top wealth continues. I predict that Prop 40 is not the last attempt to fight back against billionaires,” he said.
(Reporting by Ann Saphir and Peter Henderson; editing by Edward Tobin)
