California's Billionaire Tax (Prop 40), SEIU-UHW's Ballot Machine, and the Valuation Trap

Looking up the current status of California's billionaire tax.

It's Proposition forty on November third. One-time five percent tax on the net worth of anyone who was a California resident on January first, twenty twenty-six, with a net worth of a billion or more. About two hundred fifty people, roughly two trillion in aggregate wealth. Ninety percent of the revenue goes to healthcare — mostly Medi-Cal — ten percent to food assistance and education. Real estate, pensions, and retirement accounts are exempt. Roth IRAs over ten million are not. Between one and one point one billion, the rate phases in. Payable in twenty twenty-seven, or spread over five years with a seven point five percent annual deferral charge.

The sponsor is SEIU-UHW, the healthcare workers union, president Dave Regan. The actual legal drafting came from tax professors — Brian Galle at Berkeley, David Gamage at Missouri, Darien Shanske at Davis, and Emmanuel Saez, the inequality economist. They collected one point six million signatures, nearly double what they needed.

For it: Bernie Sanders, Ro Khanna, the California Democratic Party, AFL-CIO, Teamsters, AFSCME, Tom Steyer, Tony Thurmond. Sanders called billionaires "oligarchs of the eighteenth century." The union's argument is that Trump's One Big Beautiful Bill Act cuts roughly thirty billion a year from Medi-Cal, which covers one in three Californians, and billionaire wealth is the only pool big enough to backfill it.

Against it: Newsom, who called it "really damaging to the state" and endorsed Prop forty-two, a Brin-funded measure that would ban new taxes on personal property outright. Xavier Becerra, Katie Porter, Antonio Villaraigosa, and Matt Mahan — every major Democratic gubernatorial contender — are also opposed. The California Medical Association, Primary Care Association, Teachers Association, Planned Parenthood, professional firefighters, and the state building trades signed a joint statement calling it dangerous. Sergey Brin put in a hundred and two million. Chris Larsen, Peter Thiel, DoorDash's Tony Xu, and Ron Conway are in the mix too. A PAC called Building a Better California has spent over three hundred million — a hundred eighteen against Prop forty, a hundred eighty-six propping up Props forty-one and forty-two, which could nullify it if they get more yes votes.

The latest Citrin-POLITICO poll has it at forty-six to forty-three, short of a majority with ballots already out. The Yes campaign spent four point four million in the last reporting period. The opposition spent more than thirty times that.

The politics underneath: this is SEIU-UHW's revenge project. They've sponsored forty-eight ballot initiatives since twenty twelve, most failed. This one grew out of their fight over dialysis clinic regulations — the same union that pushed the billionaire tax framing while media called it purely a healthcare-funding measure. Newsom tried to kill it with a two percent legislative alternative; Regan offered to drop to two percent if Newsom backed it, Newsom refused. Now it's a proxy war over whether California's Democratic Party is for the donor class or the working class, playing out two years before a presidential primary.

One wrinkle worth knowing: the Hoover Institution's analysis found two-thirds of the projected Medi-Cal cuts happen after twenty thirty, well after this one-time revenue would be collected. So even if it passes, the timing doesn't match the need.

Want me to go through what Props forty-one and forty-two actually do, or dig into the valuation fight over private company stock?

Checking SEIU-UHW's ballot history.

Yeah — Dave Regan calls ballot initiatives "the best bargain in American politics," and his record backs that up. Since twenty twelve he's filed somewhere between twenty-three and forty-eight initiatives at the state and local level. Almost none have passed. The signature move is the dialysis trilogy — Prop eight in twenty eighteen would have capped dialysis clinic profits, rejected sixty to forty. Prop twenty-three in twenty twenty required an on-site physician, rejected sixty-three to thirty-seven. Prop twenty-nine in twenty twenty-two loosened that to allow a nurse practitioner, rejected sixty-eight to thirty-two. Each one nearly identical to the last. Here's the thing — there are no unionized dialysis workers in California. DaVita and Fresenius run those clinics non-union, and they spent over two hundred sixteen million across the three fights. Regan's own framing was that the campaigns publicized the union's critique and led to a twenty nineteen law tightening how clinics steer patients into high-reimbursement plans. Critics, including Democrats and other unions, read it as attrition warfare — bleed the companies dry until they recognize the union.

The hospital playbook is even more explicit. In twenty fourteen they filed two measures — one capping nonprofit hospital exec pay at four hundred fifty thousand, the president's salary, another capping hospital charges at twenty-five percent above cost. They withdrew both after the California Hospital Association agreed to a code of conduct easing union organizing and to jointly lobby for higher Medi-Cal rates. In twenty sixteen a similar exec-pay measure qualified but got pulled on an arbitrator ruling. This year they filed the Healthcare Executive Compensation Act again, then dropped it June twenty-fifth in a deal where the hospital association also killed its dueling measure restricting union political spending.

The twenty sixteen minimum wage initiative is the one they count as a win — it qualified, Jerry Brown's staff called their signature contractor to check viability, and a week later Brown signed Senate Bill three phasing in fifteen dollars. Regan says Brown's people reached out first.

Out of state they've had real wins — Arizona's healthcare debt interest cap in twenty twenty-two, Michigan's independent redistricting commission in twenty eighteen. They also seeded The Fairness Project in twenty fifteen, which has won thirty-nine campaigns nationwide.

The California Primary Care Association just filed a racketeering lawsuit against Regan personally, arguing Prop forty-four — the community clinic spending measure polling at thirty-four percent — is the same extortion playbook aimed at clinics they want to unionize. That case hasn't been heard.

So the pattern isn't incompetence. It's a deliberate strategy where the initiative is the opening bid in a negotiation, and the ballot is the leverage. The billionaire tax is the first time they've aimed it at a target that isn't a healthcare employer.

Probably both, and the mix shifts by target. With dialysis and hospitals, the leverage reading is hard to escape. You don't refile the same nearly identical measure three times after two blowout losses because you think voters will suddenly agree — you do it because each round costs the target industry a hundred million it can't spend on anything else. Regan has said as much in his own way, calling withdrawals "tactical gains." That's not evil, it's just what a negotiator does when the ballot box is his leverage and he has no other seat at the table.

Prop forty is different because there's no employer to organize. Billionaires aren't going to unionize. So it reads more like genuine policy conviction — Saez and the tax professors gave it intellectual scaffolding, the Medi-Cal cuts gave it urgency, and Regan gets to be the guy who finally taxed the rich in California. There's also self-interest: if Medi-Cal funding collapses, union healthcare jobs go with it. But that's aligned interest, not extraction.

The part I'd flag is the racketeering suit. If a federal judge ever lets that theory breathe — that repetitive initiatives are extortion rather than advocacy — it doesn't just threaten Regan, it threatens the whole initiative ecosystem. California's ballot process has always been a pressure valve for groups locked out of Sacramento. Redefining that as racketeering would change who gets to use it.

I could dig into whether any court has ever actually tested that theory before, if you want.

Searching for the valuation rules in Prop forty.

The ten-times thing is a misreading that spread online. The actual provision, Section fifty thirty-three c three C, says that for interests conferring voting or control rights, your ownership percentage is presumed to be not less than your share of the voting rights. So if you own ten percent of the equity but sixty percent of the votes, the default formula taxes you on sixty. That's the kernel people turned into "ten-x voting shares."

But it only applies to privately held companies. Publicly traded shares — including super-voting Class B shares at Meta or Google — get valued at market price on December thirty-first, twenty twenty-six, period. The drafters wrote that exclusion in explicitly, and their section-by-section explainer hammers it: the control-rights floor does not apply to publicly traded entities, whether or not the shares themselves trade.

For private companies, the default formula is GAAP book value plus seven point five times average annual book profits, times your ownership share — with ownership being the higher of economic stake or control rights. A business with three straight loss years still gets valued at book value, since losses floor at zero. You can rebut with a certified appraisal, but only on clear and convincing evidence the formula substantially misstates value, and appraisers themselves face penalties up to four percent of any discrepancy if the Franchise Tax Board disagrees.

There are more anti-abuse floors stacked on: no minority or lack-of-marketability discounts, nothing worth less than its insured value, and a business can't be valued below its last funding round within two years. Real estate held directly or in a revocable trust is out entirely — but real estate held through an LLC or limited partnership is fully in. Roth IRAs only count above ten million combined. Pensions and traditional IRAs are exempt. Art and collectibles get a five-million-dollar exclusion before appraisals kick in.

The Tax Foundation's sharpest example is Tony Xu — two point six percent of DoorDash economically but fifty-seven point six percent of the vote. If his stake were private and the voting presumption stuck, his taxable base could more than double. DoorDash trades publicly, so under the drafters' reading it shouldn't. But Stout, the valuation firm, notes the statutory language isn't airtight on whether non-traded super-voting shares in a public company fall under the public-trading rule or the private-entity rule, and that's exactly where the first lawsuits will land.

The NBER working paper puts it more bluntly: read as written, the Act taxes not just the economic value of a founder's stake but the value of the share of the firm they control — which can substantially exceed what they'd get selling it.

I could dig into how the Berkeley versus Hoover revenue estimates diverge on exactly this valuation question, since that gap is over a hundred billion dollars on the same people.

Their own explainer reads as intentional. They describe the control-rights floor as targeting a known estate-tax dodge — people holding voting control without a matching economic stake — and they say the public-company exclusion was deliberate too, because market value already captures what those shares are worth. So they anticipated the dual-class issue and chose to route it through the trading-price rule rather than the voting formula.

Whether that choice was good policy or just convenient is where it gets murkier. Saez's whole intellectual project is taxing wealth at its source, and a rule that hits founders on control rather than cash flow is philosophically consistent with that. But it also creates a forced-sale pressure that even sympathetic tax scholars acknowledge — you'd be taxing people on value they can't easily liquidate without giving up the very control the tax is measuring. The drafters' answer is the appraisal safety valve, but that shifts the burden and the risk onto the taxpayer and their appraiser.

My read: they knew it would overstate value in edge cases, decided the overstatement was acceptable or fixable in court, and wrote the explainer to pre-defend against exactly the criticism you're raising. That's not a bug they missed. It's a design choice they expected to have to argue for.

It's a cleverly designed pressure valve, not a clean tax. The one-time structure sidesteps the constitutional mess that killed Washington's wealth tax attempt, the real-estate exemption buys off homeowners, and the Roth carve-out above ten million is a wink at Thiel without naming him. The revenue estimate swings from a hundred billion to negative thirty-nine depending on assumptions about departures, avoidance, and litigation — which tells you the number is more political theater than fiscal plan.

What I actually think: it's less about the money and more about the message. Five percent of two trillion is a hundred billion, but California's structural deficit is around thirty billion a year, so even full collection doesn't fix anything lasting. What it does is force a public fight over whether extreme wealth concentration is politically tolerable in a state that just handed a hundred and two million to one billionaire to fight it. That's the real stakes.

The risk I keep coming back to is the same one from the rail conversation — a system that can tax a billionaire's private company at book value plus seven point five times profits, with appraisers personally penalized for disagreeing, is a system that can tax anyone's assets the same way later. The precedent is the product. Whether you think that's a feature or a bug probably depends on whose assets you think get targeted next.

I could dig into what the legal challenges would actually look like if it passes — the dormant Commerce Clause arguments, the valuation litigation, whether the California Supreme Court would even let it stand.

Let me check the latest on the California Supreme Court and Prop forty.

Prop forty builds its own fast lane. Facial challenges — meaning arguments that the whole thing is unconstitutional as written — have to be filed in Sacramento Superior Court within sixty days of passage, with a ruling due by April first, twenty twenty-seven, and any appeal jumping straight to the California Supreme Court with a decision required by November first of that year. The drafters did that on purpose: they wanted the big constitutional questions settled fast so nobody could gut it five years in with a sweeping lawsuit. What that schedule doesn't cover is the as-applied fights — individual residency disputes, valuation battles, apportionment claims — and those can drag on for years, possibly a decade. The Gilbert Hyatt case is the cautionary tale: the Franchise Tax Board went after him for moving to Nevada in the nineties, and it's still not fully resolved after California, Nevada, federal, and US Supreme Court litigation.

The opposition is already assembled. The California Business Roundtable retained Elizabeth Prelogar, the former US Solicitor General, to lead the charge. The Hoover Institution published a paper arguing the tax violates Due Process because it taxes worldwide wealth based on a single day's residency, runs afoul of the Commerce Clause by taxing assets outside California without fair apportionment, and raises Bill of Attainder concerns because it targets a named class of people. The Tax Foundation flagged the valuation formula, the retroactive residency date, and the mandatory aggregation of nonresident spouses' assets as separate constitutional problems. The National Taxpayers Union Foundation counted at least eight distinct grounds.

Here's the structural irony: the expedited facial track means the Supreme Court has to rule on provisions before the Franchise Tax Board has even issued regulations interpreting them. Challengers will argue claims are unripe; the state will argue the initiative's own text bars them later. Either way, the court is being asked to decide a novel tax with no precedent on a compressed clock, and the losing side will almost certainly try for US Supreme Court review after that.

One more wrinkle — if Prop forty and Prop forty-two both pass, the court also has to decide whether they conflict, and California precedent says only the higher-vote measure takes effect. Galle himself admitted courts will likely have to sort out those complications.

So the realistic timeline: election November third, facial ruling spring twenty twenty-seven, Supreme Court decision by fall twenty twenty-seven, and then years of individual litigation on top. Nobody collects a dime until that first round clears.

Want me to go deeper on any one of those challenge theories — the Commerce Clause apportionment argument is probably the strongest one?

It's both, but the precedent is the bigger prize. Regan literally offered to withdraw it for a two percent legislative version — that's textbook leverage. But the professors behind it aren't union staffers. Saez has spent his career trying to make wealth taxes politically normal, and he said himself this was designed as a template other states could copy. So the union gets its bargaining chip, and the movement gets its proof of concept.

And "no one gets taxed" is too strong. Even a partial survival — say the courts kill the retroactivity or the voting-rights presumption but leave the core five percent intact — still means tens of billions collected from people who can't easily leave. The Gilbert Hyatt fight took thirty years and still ended with California winning on the merits in federal court. Wealthy people litigate forever, but they also eventually pay.

The real precedent isn't just "you can tax wealth." It's "you can tax wealth retroactively, based on a snapshot date, with the state defining valuation and penalizing appraisers who disagree." That's a much more aggressive template than anything Saez has floated before, and it's the part that should worry people who don't own a billion dollars.

Norway, Switzerland, and Spain do run recurring wealth taxes today. Norway's is the cleanest — one percent above roughly one hundred fifty thousand dollars, stable for decades, and it funds a big chunk of the welfare state without much drama. Switzerland's works because rates are so low, point one to one percent, and vary by canton, so it's more of a local revenue tool than a redistribution hammer. Spain's is the messiest — reinstated in twenty eleven as a temporary fix, renewed every year since, and it's driven enough capital out that economists debate whether it raises anything net.

France is the best case study for what happens when you do it badly. The original ISF taxed all assets including stocks and business equity, and by twenty seventeen it was collecting about five billion euros a year while costing an estimated sixty billion in lost investment and flight. Macron replaced it with the IFI, which only hits real estate above one point three million. So France effectively gave up on taxing financial wealth.

Your property tax point is exactly right and it's the one wealth tax Americans already live with. Prop thirteen turned it into a tax on entry price rather than current value — someone who's owned a house since nineteen eighty pays a fraction of what a new buyer pays on the identical asset. That's a wealth tax with a grandfather clause baked in, and it's politically untouchable precisely because the people it benefits are the ones who vote.

The pattern across all of this: wealth taxes survive when they're low, narrow, and predictable. They die when they try to be redistributive at scale. Prop forty is trying to be the latter at five percent on a snapshot date, which is why even the people who like the idea think the implementation is reckless.

I could walk through what Norway's actual numbers look like — revenue, flight, who pays — if you want the one working example in detail.

Sleep well. The world's still there in the morning.