Proposition 40: A Short-Sighted Gamble with California's Future

Introduction: The Ballot Box Dilemma

This fall, California voters face a critical decision that pits immediate fiscal needs against long-term economic stability. Proposition 40, placed on the November ballot, proposes a one-time tax of 5% on individuals with more than $1 billion in covered assets. The stated goal is noble: to address shortfalls in Medi-Cal and fund other essential public services. The urgency is real, as Californians grapple with soaring costs and an uncertain federal funding landscape. However, as with any significant policy shift, the devil is in the details, and the potential consequences extend far beyond a simple revenue injection. The debate is framed by two opposing guest commentaries: one from Ahmad Thomas, CEO of the Silicon Valley Leadership Group, arguing against the measure, and an opposing view from a nurse advocating for the tax. This blog post will delve into the facts, the context, and offer a principled analysis grounded in support for sustainable governance, economic freedom, and the institutions that foster broad-based prosperity.

The Core Mechanics and Projections of Proposition 40

At its heart, Proposition 40 is a wealth tax targeting a very small subset of ultra-high-net-worth individuals. The nonpartisan Legislative Analyst’s Office (LAO) projects it would generate “tens of billions of dollars” in near-term revenue. This windfall is undoubtedly tempting for a state facing budgetary pressures. However, the LAO also provides a crucial, and deeply alarming, counter-projection: an ongoing annual decrease in state income-tax collections of “hundreds of millions of dollars or more” due to taxpayer migration. This is the central tension of the proposal. It seeks to exchange a temporary, one-time cash infusion for a permanent, recurring erosion of the state’s tax base. The measure’s most controversial feature is its approach to taxing “covered assets,” which includes the estimated value of businesses and intellectual property before they are sold or generate profit—so-called “unrealized gains.”

The Innovation Ecosystem at Risk

California’s global preeminence is not an accident. It is the product of a unique alchemy: world-class universities, a skilled workforce, abundant risk capital, and a culture that celebrates bold, disruptive thinking. This ecosystem has given humanity everything from the semiconductor to search engines, from biotechnology breakthroughs to the AI revolution. It generates not just billionaire founders but millions of good jobs and the very tax revenues that fund schools, healthcare, and the social safety net. Proposition 40 directly threatens this virtuous cycle. As Ahmad Thomas argues, it risks putting a “big sign” that encourages entrepreneurs to build their companies elsewhere. The threat is not hypothetical. Other states and nations are aggressively competing for these very innovators. When a founder chooses to incorporate in Texas or expand research in Singapore, California loses more than a potential future billionaire; it loses the jobs, ancillary economic activity, and future tax streams that company would have generated over decades.

The Practical Peril of Taxing Unrealized Gains

The proposal to tax wealth based on paper valuations is particularly damaging to the engine of innovation: the long-term, high-risk startup. Consider a biotech firm spending a decade and billions of dollars developing a novel therapy. Under Prop 40, the founders could face a massive tax bill based on the theoretical value of their research long before FDA approval, a product launch, or any actual revenue. A clean-energy startup burning through venture capital to achieve a technological breakthrough could be taxed on paper valuations while still years from profitability. This creates a perverse incentive: punish long-term, foundational innovation that may not pay off for years, while rewarding short-term financial engineering. It misunderstands the nature of value creation, conflating volatile market valuations with real, realized economic gain. This approach lacks the fundamental fairness and predictability that should underpin any tax code in a free society governed by the rule of law.

A Principled Stand for Sustainable Prosperity

My analysis is rooted in an unwavering commitment to democratic institutions, economic liberty, and human flourishing. Funding a robust social safety net is a moral imperative for a civilized society. However, doing so by undermining the economic engine that makes that safety net possible is self-defeating and irresponsible. Proposition 40 represents a failure of governance—a pivot toward a punitive, short-term fix over strategic, sustainable policy. It ignores the foundational principle that prosperity must be created before it can be redistributed. The nurses and patients who depend on Medi-Cal deserve stable, reliable funding, not a “sugar high” of revenue that may vanish overnight if capital and talent flee.

True fairness is not about penalizing success but about ensuring everyone contributes to the system that enables opportunity. California already has a progressive income tax, taxes business income, dividends, and capital gains. Those who benefit most from the state’s ecosystem already shoulder a significant burden. The solution to budgetary challenges is not to double down on a narrow, mobile tax base with a novel and legally dubious wealth tax. It is to foster an environment where more people and businesses can succeed, thereby broadening the base of prosperity and contribution.

The Path Forward: Propositions 41 and 42

The ballot offers a more responsible alternative. Proposition 42 would establish a vital guardrail for economic liberty by prohibiting new state taxes based merely on ownership of assets and intellectual property, and preventing retroactive taxation. It preserves the crucial distinction between taxing economic activity and gains versus taxing ownership itself, providing the predictability that entrepreneurs and investors need. This is not a tax cut for the wealthy; it is a rule of law measure that ensures California’s tax code remains grounded in clear, predictable principles.

Similarly, Proposition 41, which calls for greater review, transparency, and auditing of special taxes, is a direct recipe for the accountable governance that democracies require. Voters deserve to know exactly how proposed taxes will operate and whether the programs they fund are effective. This is good government 101.

Conclusion: Betting on California’s Spirit, Not Its Resentment

California does not have to choose between innovation and compassion. Its history proves they can be mutually reinforcing. The state’s success was built on a bet on the future—on the idea that empowering dreamers and builders would lift all boats. Proposition 40 is a bet of a different kind: a bet on resentment and short-termism. It risks a future where California’s greatest exports are not groundbreaking technologies but its companies, its jobs, and its ambitious citizens.

We must reject this false choice. We can and must fund essential services without sabotaging the economic miracle that makes California, California. This requires courage, creativity, and a commitment to first principles: predictable rules, respect for the process of value creation, and a tax system that funds government without strangling the goose that lays the golden eggs. Vote NO on Proposition 40. Support Propositions 41 and 42. Let us reaffirm our faith in California’s enduring spirit of innovation and build a future that is both prosperous and just for all its citizens.